Turning the Page on 2023
As 2023 draws to a close, it’s time to look ahead at what 2024 has in store for us.
Whether 2023 has been your hardest or most successful year to date, turning the page and starting a new year can feel like a welcome fresh start.
2023 has felt like a mixed bag for many in the private rental sector. While an unstable economy has put a lot of financial strain on landlords, the rental market has been buoyant, offering plenty of opportunities for those willing to take them.
Despite economic challenges, there’s still plenty of good news for landlords when we look ahead. The rental market is set to continue thriving throughout 2024, and house prices are dropping, which could provide excellent opportunities for landlords who want to expand their property portfolios.
2024 will also be a pivotal year for legislative changes in the rental sector. The long-awaited Renters Reform Bill should come into effect towards the end of the year, and landlords will need to plan and prepare for it accordingly.
Here at Landlord Vision, we’ve been busy peering into our crystal ball and are now ready to reveal what 2024 holds for landlords. In this article, we’ll explain the key economic and legal changes coming to the rental sector in 2024, helping you plan and prepare effectively for the year ahead.
Landlords will face a complex financial landscape in 2024. In this section, we’ll explore how the economy is expected to change during 2024 and how these changes could impact landlords and the wider rental market.
The Bank of England has raised interest rates throughout 2023 due to soaring inflation. Raising interest rates encourages people to spend less and save more. Then, less demand for goods should, in theory, cause prices to fall. The Bank hopes that keeping interest rates high will avoid a wage-price spiral – a situation where workers demand higher wages to keep up with the cost of living, which drives up business costs and prices. This scenario can keep inflation higher for longer.
An article on The Guardian website suggests that interest rates will remain high as we enter 2024, with the UK struggling with weak economic growth and persistent inflation. Most experts think interest rates have peaked at 5.25%, but the IMF has warned central banks against cutting interest rates too quickly. However, it is unsustainable to keep rates as high as they are now, so as soon as inflation rates are back under control, the Bank should reduce interest rates, and interest rates are falling faster than expected. According to The Times, the annual inflation rate was 11.1% a year ago, which has now fallen to 4.5%. The Bank of England expects inflation to keep falling throughout 2024, but its governor has said he can’t see rates falling dramatically any time soon as inflation isn’t predicted to reach the Bank’s target until the end of 2025. However, the same article in The Times says that analysts anticipate that the Bank of England could start cutting interest rates as soon as June 2024.
Mortgage rates are expected to fall back to 4.5% by the end of 2024, according to Zoopla. This could ease some financial pressure on landlords and improve housing affordability, potentially affecting the rental market dynamics.
In 2023, the housing market experienced its first real downturn in over a decade. This downturn was primarily driven by the cost-of-living crisis and a hike in mortgage rates, making property unaffordable for many. With mortgage rates rising from just 2% to 6%, there was very little incentive to buy in 2023, with many potential buyers putting it off for at least six months when property prices and mortgage rates may be lower.
Zoopla predicts that UK house prices will fall by a further 2% in 2024, a more optimistic figure than some. This estimate is based on the assumption that mortgage rates will drop in 2024, encouraging more people to enter the market later in the year. House prices are not expected to start rising again until 2025.
Demand has consistently outstripped supply in the rental market for the last few years. This shortage of rental properties has been caused by a perfect storm of factors, including a lack of new rental stock and landlords leaving the market due to challenging conditions. Property consultancy company JLL recently reported that it anticipates that the lack of new rental stock and a challenging interest rate environment will lead to rental growth exceeding wage growth in 2024. However, news from the Autumn budget may alleviate some pressure from the rental sector. During the Autumn 2023 budget statement, the Chancellor committed to investing £110 million in nutrient mitigation schemes to facilitate the building of new homes in 2024.
As for the unprecedented demand for rental property, there’s no sign of it easing any time soon. High mortgage rates and the cost-of-living crisis have made buying unaffordable for many. According to Zoopla, as of November 2023, demand for rental properties is running 27% above the five-year average. This has led to a substantial increase in the price of rent. In fact, in November 2023, rents rose 10% for the 20th month in a row, and the average rent for a new lease stood at £1,166 per month. Looking ahead to 2024, Zoopla predicts national rental growth to grow by 5-6% and even higher in big cities. Rental demand isn’t expected to slow until at least 2025, when more attractive mortgage rates may prompt more tenants to transition into homeownership.
In 2024, we expect to see some significant legislative changes come into effect, primarily the introduction of the Renters Reform Bill. Landlords must plan and prepare for these changes to ensure a smooth transition to the updated regulations and standards.
The Renters Reform Bill has been a popular subject of debate amongst landlords during 2023. The bill aims to provide tenants and landlords with a safer and more secure private rental landscape. Although we have no official date for when the bill is due to come into effect yet, it went through the committee stage of its journey through parliament in November 2023, so we’re probably looking at late 2024; some people are guessing around the start of October.
During the committee stage, one important part of the Renters Reform Bill, abolishing Section 21 evictions, was delayed indefinitely. It is to be delayed until it is judged that sufficient progress has been made in improving the court process to make it simpler for landlords to use.
When the Renters Reform Bill does come into effect, it will initially affect new tenancies only, with pre-existing tenancies to be included 12 months later.
Let’s take a look at the key points covered by the Renters Reform Bill:
In another recent development, landlords will no longer need to rush to improve the energy efficiency of their property during 2024. Landlords were previously under pressure to upgrade their properties to a minimum EPC rating of C by 2025 for new tenancies. However, Rishi Sunak scrapped the plans in a speech in September 2023 when he said, “Under current plans, some property owners would have been forced to make expensive upgrades in just two years. That’s just wrong. So those plans will be scrapped, and while we will continue to subsidise energy efficiency, we’ll never force any household to do it.” This change provides landlords greater flexibility and more time to make the changes.
In 2024, the UK will embark on a journey towards economic recovery. Landlords who continue to weather the storm may be rewarded towards the end of 2024 when mortgage rates are expected to fall. Landlords will also continue to reap the rewards of a strong rental market, particularly those with investment properties in high-demand cities. Strong demand and high rents are likely to yield profitable returns for many, even in the face of high mortgage rates. The much-anticipated Renters Reform Bill will bring significant legislative changes aiming to improve the private rental landscape for landlords and tenants. We are optimistic that by the close of 2024, the UK economy should have turned a corner, and some of the current financial challenges landlords face should begin to ease.
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