For decades, UK property has been regarded as a reliable investment, with house prices rising consistently and rental yields offering steady returns. However, in recent years, the return on investment (ROI) in UK property has declined due to a range of economic, regulatory, and market factors. This shift means that purchasing a home at the right price has become more crucial than ever.
UK House Price Growth Over the Decades (Adjusted for Inflation)
To understand the changing dynamics of the property market, here's a look at UK house price growth over the last 50 years, adjusted for inflation:
| Period | Real House Price Compound Annual Growth (Inflation-Adjusted) |
|---|---|
| 1970s | +3.76% |
| 1980s | +5.97% |
| 1990s | +1.23% |
| 2000s | +5.26% |
| 2010s | +2.5% |
| 2020s | ~0% |
Source: Nationwide House Price Index, ONS Data
Defying Gravity
While property values surged in previous decades, recent years have seen a slowdown, with house price growth stagnating in real terms since 2020. As the numbers get bigger the rate of growth will have to slow down or keep defying gravity. E.g. The average purchase in London has increased 10x from £50k in the 1970s to £500k in 2024. How likely is it that the average purchase price will be £5,000,000 in 2074? Assuming London's property market followed suit its worth would balloon from £1.5 trillion today to £11.5 trillion. That would be 3x more than the entire UK GDP today. Seems a little far fetched if you ask us.
Why Has UK Property's Rate of Return Declined?
1. Slower House Price Growth
The boom periods of the 1980s and 2000s saw rapid house price increases, but today's market is facing stagnation due to affordability constraints and economic uncertainty. With wages failing to keep pace with property values, demand has softened, particularly in expensive regions like London and the South East.
2. Higher Interest Rates
The Bank of England has raised interest rates in response to inflation, pushing mortgage costs higher. This has made property less affordable for buyers and reduced the ability of investors to leverage finance for property acquisitions, cutting into potential returns. It's possible, even likely that interest rates will decline somewhat from current levels but extremely unlikely they will fall and then remain as low as the 08/09 levels. Interest rates tend to affect asset prices like gravity affects us humans. Combining a higher interest rate than the 2000s/2010s with a greater value per property is not a recipe for faster price appreciation than the past.
3. Stricter Buy-to-Let Regulations
Government policies have increasingly targeted landlords with higher taxes, stricter lending criteria, and regulatory changes such as:
- Reduction in mortgage interest tax relief
- Higher stamp duty for second homes
- Energy efficiency requirements for rental properties
These measures have eroded rental yields, making buy-to-let investment less attractive than in previous decades.
4. Rising Maintenance and Operating Costs
Inflation has driven up the costs of building materials, maintenance, and property management. Additionally, new energy efficiency requirements mean landlords must invest in property upgrades, further squeezing profit margins.
The Importance of Buying at the Right Price
With ROI diminishing, the margin for error in purchasing a property has never been smaller. Here's why securing the right deal is essential:
1. Protection Against Market Downturns
Purchasing below market value provides a buffer against price drops, reducing the risk of negative equity in a downturn.
2. Maximising Rental Yields
For buy-to-let investors, acquiring property at a competitive price ensures better cash flow, helping to offset rising costs.
3. Stronger Long-Term Profitability
Even in a slower market, property remains a long-term asset. Buying at the right price increases the likelihood of future capital appreciation and sustainable returns.
Tips for Securing a Property at the Right Price without using GetKeys
By being diligent and doing all the work yourself you can increase your chances of getting a better deal vs the average buyer.
- Research Local Trends: Analyse house price trends and rental yields in your target area.
- Be disciplined against auction dynamics: Warren Buffett has a saying 'when they're holding a public auction, don't go.' We humans can suffer from psychological bias when rushed into decision making. Be vigilant against being rushed into a purchasing decision, even if it could go quickly.
- Look for Motivated Sellers: Seek properties where sellers are keen to close quickly, often leading to better deals.
- Consider Off-Market Opportunities: Some of the best deals are not publicly listed; networking with property professionals can uncover hidden gems.
- Factor in Total Costs: Beyond purchase price, consider renovation expenses, tax implications, and long-term maintenance.
GetKeys
Even by doing all the above though, information alone won't minimise the probability of making a sub optimal choice. Having a property developer with 40 years experience in your corner can help. They can see things someone without experience cannot, they know how to handle agents and should give you a much more accurate picture of the intrinsic value of a property. Importantly with GetKeys they have no incentive as to whether you buy a property or not so the insight you get will be there to help you make the best decision for you and or your family. They are paid to give advice, unlike estate agents who are paid to encourage a sale and ideally for as much as possible.
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