Forecasts for the UK Property Market: Will the New Cycle Bring Historic Highs?
The UK property market, like other investment sectors, experiences cyclical booms and downturns. Based on historical data and current developments, such as increasing interest in institutional investments and changes in economic policies, we can make predictions about future price trends. Will the property market reach new record highs? Let’s take a closer look.
A Look Back at UK Property Market Cycles
To forecast the future, it’s helpful to first examine the past:
1. 2008 Financial Crisis:
- Property prices fell by approximately 15-20% within a year.
- Full recovery took several years, but by 2013, the market saw dynamic growth.
2. 2016 - Brexit:
- Brexit introduced uncertainty to the market, causing a slowdown in price growth in some regions.
- Reduced demand in London was offset by growth in regions such as Manchester and Birmingham.
3. 2020 - COVID-19 Pandemic:
- Despite initial concerns, the market experienced a boom due to low interest rates and the "stamp duty holiday" (temporary tax relief on property purchases).
- Price increases reached up to 10% annually in some regions.
Predictions for the New Cycle
Projections Based on Historical Data
From historical patterns:
- Property prices tend to rise in the long term, but correction cycles (downturns) occur every 8-12 years.
- After dynamic growth during 2020-2022, corrections of 5-10% are possible before the market resumes its upward trajectory.
Considering Institutional Investment Adoption
In recent years, the UK property market has seen growing interest from institutional funds investing in the Private Rental Sector (PRS):
- Build-to-Rent: Projects specifically developed for rental purposes are increasingly popular, especially in cities like Manchester, Leeds, and Birmingham.
- Impact on prices: Growing demand for rental properties could drive up land and residential building prices, particularly in well-connected locations.
Updated Estimates:
1. Minimal price growth: With moderate demand growth, prices could rise by 5-8% over the next 2-3 years.
2. Maximum price growth: With continued institutional investments and stable economic policies, growth of 10-15% is possible within the same period.
What About Corrections?
During previous cycles, corrections were often localised and temporary:
- 2008: A deep price drop of 15-20%, particularly in expensive areas like London.
- 2016: Brexit caused price stagnation, but declines were limited to a few percent.
Currently, potential corrections could result from:
1. Rising interest rates, reducing buyers’ borrowing capacity.
2. Reduced attractiveness of mortgages for individual investors.
Potential Lows:
- Mild scenario: Price drops of 5-8% in selected areas, particularly in expensive London districts.
- Pessimistic scenario: Corrections of up to 10-15%, mainly in the premium segment.
Factors Influencing Forecasts
While history provides valuable insights, many factors could impact the property market:
1. Monetary policy: Interest rates directly affect property prices through mortgage costs.
2. Demographics: Growing demand for housing, especially in university and business hubs.
3. Foreign investments: Demand from overseas investors may rebound as economic conditions stabilise.
Will the UK Property Market Reach New Highs?
Based on previous cycles and the potential impact of institutional investments, the peak in the new price cycle could range from 5% to 15% above current prices. Corrections, if they occur, are likely to be limited to selected locations and market segments.
The UK property market remains a stable investment asset, offering opportunities for both individual and institutional investors. It’s worth monitoring developments and making investment decisions with caution.
What do you think of our forecasts? Will the UK property market reach new heights? Share your opinions in the comments!
