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Capital Appreciation set to rise more than expected this year

Investors relying on capital appreciation are in for a pleasant surprise in 2024 according to Knight Frank.

Tom Bill, head of the agency’s residential research team, says: “In October, financial markets were pricing in a single interest rate cut of 0.25 per cent by the end of 2024. [Now] they are expecting five. The main reason for this changing outlook is that inflation is falling faster than expected. As a result, mortgage lenders have dropped their rates fairly significantly in recent weeks, partly to win business in a low-volume market.

“The best five-year fixed-rate mortgage is now under 4.0 per cent, which was made possible after the five-year swap rate fell a full percentage point over the final quarter of 2023. As a result of this more positive backdrop, we have revised our UK house price forecasts from three months ago.”


On the sales side Knight Frank now expects UK mainstream prices to rise by 3.0 per cent in 2024, which compares to a decline of 4.0 per cent predicted in October. It expects cumulative growth of a meaty 20.5 per cent in the five years to 2028.

Bill states: “Data from Halifax and Nationwide certainly suggests a corner is being turned. While the former reported a 1.7 per cent increase in 2023 and the latter posted a fall of 1.8 per cent, that compares to a 5.0 per cent decline that both identified in August. With UK housing transactions a fifth below their five-year average, we waited until a clear pattern emerged showing prices were bottoming out, which we believe is now the case.

“As a result of stronger demand, the number of mortgage approvals was 10 per cent higher in November than the previous year and we expect a double-digit percentage increase in sales volumes this year compared to 2023.”

On the lettings side, Knight Frank says landlords have left the sector in recent years due to extra red tape and taxes, which has put strong upwards pressure on rental values. 

However, supply is recovering as demand is gradually being absorbed and more sellers have become landlords in a sales market where price growth has been minimal.

Bill says: “New listings in Prime Central and Prime Outer London were only seven per cent below the five-year average in December, Rightmove data shows.

We have not altered our rental forecasts dramatically from October and forecast 5.5 per cent rental value growth this year in PCL, which would be lower than the 8.0 per cent registered in 2023. Meanwhile, we expect a 4.5 per cent increase in POL, down from 6.8 per cent in 2023.

“Rental value growth should be stronger in lower-value markets as the supply/demand distortions are greater. Property owners are typically more discretionary in higher-value markets and have been able to let while price growth has been flat.

“There were 4.3 new prospective tenants for every rental listing below £1,000 per week in PCL and POL in the final quarter of last year, Knight Frank data shows. Above £1,000 per week, the figure was 2.7.”


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