The United Kingdom is famous for its red buses, breathtaking landscapes, a world-famous spy like James Bond, and really good Scotch. But is the UK real estate market as strong as other UK landmarks? Find the answer in the article below!

Main takeaway: The UK housing market shows slow, but sustainable growth recovering from the uncertainty of the last few years, giving most experts cautious optimism about its potential.

UK real estate prices

According to the UK Office for National Statistics, as of June 2024 (the most recent available data), the average house price in the UK is £287,924. This indicates a 0.5% increase compared to May 2024 and a 2.7% rise compared to June 2023, suggesting positive market prospects.

The most recent House Price Index Report by Zoopla analysts indicates a modest recovery in house price inflation. This is attributed to an increase in new sales and buyers paying closer to the asking price. At the same time, sellers are listing homes at a higher-than-usual rate, with many also looking to purchase new properties, contributing to the rise in agreed sales.

As of August 2024, buyer demand is up 20% compared to the same month last year. However, buyers remain price-sensitive, with 1 in 5 homes listed for sale in August 2024 seeing price reductions of 5% or more to attract interest. While this is above average, it is lower than the 23% peak seen last autumn, when higher mortgage rates dampened demand and caused house prices to drop. The current trend suggests that sellers need to price their homes reasonably if they want to secure a sale within a reasonable timeframe.

Experts note that the housing market is more balanced now than it has been in the last five years. Lower mortgage rates and an improving economic outlook have brought more sellers and buyers into the market, boosting sales volumes and business plans for builders, realtors, and lenders.

Mortgage rates for UK real estate

Between 2022 and most of 2023, the Bank of England increased its base interest rate from 0.1% to 5.25% in an effort to fight inflation. These sharp increases affected mortgage rates accordingly.

In August 2024, the BoE's base rate was finally reduced to 5%, which marked the first and eagerly awaited decrease since March 2020. This moment was eagerly anticipated by many homeowners, investors, and buyers. Though the decrease is small, it has already slightly affected the market since many cautious buyers were waiting for the rate to come down. Lower mortgage rates have a solid potential to increase buyers’ demand.

Supply and demand in the UK real estate market

Zoopla says that the supply of homes for sale continues to increase and now stands at a seven-year high, with an average of 33 homes per agent, giving buyers even more options. 

Higher housing supply will moderate price inflation throughout 2024 and into 2025 while sufficient buyer demand should support rising sales volumes. According to the report, all key indicators of sales market activity are higher than they were in the previous several years driven largely by economic growth and increasing consumer confidence

Rental prices in UK

Although the number of homes available for rent is rising, competition for rental properties remains high, especially in highly sought-after areas. The recent data reveals it has slowed to 5.4%, the lowest rate in nearly three years.

However, high demand and a limited supply continue to keep rents elevated. Experts believe the supply-demand gap is beginning to narrow, but there is still a long way to go.

The end of the non-dom era

Simply speaking, non-doms are the UK residents who live in the UK for at least part of the year, but whose primary home (or domicile) is in another country. Non-dom status allows them to avoid paying UK tax on their foreign income and gains, as long as they do not bring that money into the UK. 

Non-dom individuals have historically driven demand for high-end properties, especially in cities like London, where the property market was seen as a safe, long-term investment. In some neighborhoods, prices for luxury homes rose well above the UK average, outpacing wage growth and making the market less accessible to locals.

The abolition of the non-dom regime could impact the high-end property market. Some non-doms may choose to sell their UK properties and move their wealth elsewhere, increasing high-end listings and potentially driving prices down if demand weakens. However, the effect would likely remain localized to prime locations and not significantly affect the broader UK housing market.

What's next? UK property market outlook for the end of 2024

After two years of turbulence, predicting the future direction of the housing market remains challenging. However, most experts agree that its future strongly depends on mortgage rates, the upcoming budget announcement in October, and future decisions by the BoE, which will be influenced by inflation. 

Recent data indicates that over the last decade, all declines in house prices were linked to rising mortgage rates. With the recent base rate cut and forecasts for another reduction in November, analysts are cautiously optimistic that the market will continue to grow.

Is it a good time to invest in UK real estate? 

Despite the cautiously positive outlook from economists, the UK housing market remains hard to predict. It is important to remember that the UK consists of England, Scotland, Wales, and Northern Ireland, and each region has unique market conditions. While our outlook applies to the UK market as a whole, different areas may behave differently.

You should invest only after conducting your own due diligence on the local market. For those new to real estate, it is a good idea to start with options like tokenized real estate. This approach allows you to invest in carefully selected properties with potential returns calculated in advance.

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