The real estate sector has seen a lot of challenges in recent years. According to CNN, house prices in the UK are weighed down by high-interest rates and saw their biggest annual decline early in 2023, with the average price of a house falling 1.1% to £257,406. This poses significant implications for the general performance of the UK economy, as the real estate sector accounts for 13% of the country’s economic output.
In line with this, even prime real estate areas such as London are affected by the current shift in the market. Soaring mortgage rates are pushing Londoners out and weakening the economics of investing for landlords across the city. As such, many wonder if investing in London properties is still wise, considering that the market suffers from low sales and tenant rates.
The current state of property and property investments
One of the most significant factors affecting both tenants and landlords in the UK is the high rent and rate prices. Landlords are faced with challenges about the current situation with property investment as the Bank of England has hiked its base rate ten times since last year. This has led to higher mortgages and interest rates that also increase landlords’ maintenance and insurance costs.
In line with this, the rise of short-term lettings and Airbnb properties has also affected the current market. A report from iNews showed how 257,331 homes in England had stood empty for at least six months since they were being used as short-term rentals. These places not only drive up real estate prices but also contribute to the property shortage in the country since tenants looking for a home rental cannot bid on them. Some residents have also considered remortgaging their property as the value of their home increases amid the rise of short-term lettings in some areas. This presents benefits for personal finances and individual credit scores but can pose potential losses if Airbnb and other short rentals decline in popularity.
What impacts London’s property market
While London is considered one of the best areas to buy property in because of its accessibility to business and other commercial hubs, it is weighed down by its current property crisis. The typical London house prices went down 4.8 per cent, with rising mortgage rates forcing landlords and sellers to be “more realistic” in their pricing. With the current inflation and cost of living crisis, buyers demand affordability, especially since many properties remain empty due to potential tenants being driven out by high prices.
However, unlike other cities in the UK, London has seen better opportunities with its prime housing market, even with rising interest rates. According to The Independent, prime housing greatly benefits from affluent buyers’ ability to buy with cash or low loan-to-value ratios. Additionally, more wealthy buyers are less likely to worry about higher mortgage rates since they are not reliant on borrowing to help complete the purchase of a property.
Since there is still a robust market in prime real estate, some real estate brokers are taking advantage of this by working to appeal to more affluent clients. They enlist the expertise of sales and marketing professionals to create suitable materials that promote the image of a property and help potential buyers imagine themselves in the space they’re trying to sell. Marketing impacts an asset’s value, and these professionals will often focus on strategies to bolster a property’s benefits and close profitable deals. This is highly important for property selling. Considering the competitive market and the high selling point of prime real estate, some potential buyers need to see that a property is worth its hefty price tag.
Should you invest?
It may seem discouraging to invest in London property, especially since both landlords and tenants are struggling with the factors affecting the current market. In addition to the current state of the market, the UK government also introduced new housing regulations that require homes to be more energy efficient. This could be a factor that could further drive prices up, as homebuilders and developers need to comply with the requirements and include additions to make a property more eco-friendly. While investing in residential properties within London is not profitable at the moment, potential investors can benefit from looking into commercial properties to invest in.
The Standard recently reported how the commercial sector is now worth £1.8 trillion due to investors seeking more stable and profitable property investments. Leases for shops and offices can often be longer and have lower turnover rates, making them more appealing amid the volatile housing market. This also results from the return to offices and commercial spaces, where people convene more often for work and leisure. Considering the promising growth in commercial property, it would be good to consider if you’re interested in adding London properties to your portfolio.
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