In a surprising turn of events, investors anticipating capital appreciation in 2024 can expect a more favourable landscape, as predicted by Knight Frank, a leading real estate agency. According to Tom Bill, head of the agency’s residential research team, recent shifts in financial markets have led to a revised outlook, offering a more optimistic scenario for the year ahead.
Bill notes that the initial forecast in October hinted at a single interest rate cut of 0.25 percent by the end of 2024. However, current expectations have surged to anticipate five interest rate cuts. This change in outlook is primarily attributed to the unexpected decline in inflation, prompting mortgage lenders to substantially reduce their rates in a bid to attract business within a sluggish market.
One noteworthy development is the availability of the best five-year fixed-rate mortgage, now standing at less than 4.0 percent. This became possible as the five-year swap rate dropped by a full percentage point in the final quarter of 2023. Consequently, Knight Frank has adjusted its UK house price forecasts, reflecting a more positive sentiment compared to three months ago.
On the sales front, Knight Frank now projects a 3.0 percent increase in UK mainstream prices in 2024, a significant shift from the 4.0 percent decline predicted in October. The agency anticipates cumulative growth of 20.5 percent in the five years leading up to 2028. Bill highlights data from Halifax and Nationwide, indicating a turnaround in the market. With housing transactions lagging a fifth below their five-year average, Knight Frank waited for a clear pattern to emerge before concluding that prices were bottoming out.
Bill comments on the surge in demand, noting a 10 percent increase in mortgage approvals in November compared to the previous year. The agency expects a double-digit percentage rise in sales volumes for the current year compared to 2023.
Shifting focus to the lettings sector, Knight Frank points out a trend where landlords have exited the market due to increased regulations and taxes. This departure has led to upward pressure on rental values. However, as supply gradually catches up with demand and more sellers transition into becoming landlords, the situation is evolving.
Bill states that new listings in Prime Central and Prime Outer London were only seven percent below the five-year average in December, based on Rightmove data. Despite not making significant alterations to their rental forecasts from October, Knight Frank predicts a 5.5 percent rental value growth in Prime Central London, slightly lower than the 8.0 percent recorded in 2023. In Prime Outer London, a 4.5 percent increase is expected, down from the 6.8 percent seen in the previous year.
Bill concludes by emphasizing that rental value growth is anticipated to be more robust in lower-value markets, where supply and demand imbalances are more pronounced. In these markets, property owners are shown to be more discretionary, with 4.3 new prospective tenants for every rental listing below £1,000 per week in Prime Central and Prime Outer London in the final quarter of the previous year, according to Knight Frank data. Above the £1,000 per week mark, the figure stood at 2.7, highlighting the varying dynamics in different segments of the property market.