Thinking back to the end of 2023, it was an atypical year – interest rates kept climbing up, and the overall market sentiment was one of confusion mixed with caution. I’d probably heard the phrase ‘buyers/sellers are sitting on their hands’ more times in that year alone than in my 24 years in property.
Don’t get me wrong – the auction market was still very much liquid being primarily cash-driven, but the cost of financing was a clear hurdle for some investors who would have otherwise chosen to buy in cash and refinance with debt at a later stage.
Moving into 2024, we were all eagerly expecting interest rates to be reduced, which ultimately did happen but not as quickly as we would have hoped for – the cuts we’ve seen have been piecemeal. But after a sluggish 2023 that sign of better times ahead was enough to set the direction of travel.
What was 2024 like for residential auctioneers?
Not many organisations in the property sector can say the same, but 2024 was a record year for Allsop’s residential auction team and a strong year for the consultancy as a whole. Having raised more than £610m from 12 residential auctions, we held the country’s biggest residential sale on record in September, with sales totalling nearly £93m.
Reflecting on the reasons for such a successful year against the backdrop of improved yet still challenging market conditions, it is difficult to point to a single factor at play – in 2024, it was a combination of several events and circumstances.
Why was 2024 such a successful year for Allsop’s residential auction?
The interest rate cuts seen in 2024 were certainly instrumental in reviving positive sentiment, but because of the gradual nature of the reductions and the caution with which they were applied, they hardly resuscitated the property market. Many of the sellers who chose to dispose of some of their properties last year had some level of debt which had become more expensive to service in a high-interest rate environment, forcing them to part with some of their holdings and recalibrate their portfolios. This resulted in a steady flow of new instructions for the residential auction team and in attractively priced opportunities for interested buyers.
Needless to say, some of the political events of the past year also acted as a powerful catalyst for the increase in selling instructions we saw in 2024. Ahead of the Chancellor’s Budget announcement, the market was rife with speculation, and ultimately, some unpopular measures, such as a 2% increase in stamp duty tax on second homes did get introduced, compelling a number of owners to exit their investments. Said speculation had put renewed pressure on those already minded to sell, and some investors did eventually exit the market and chose the auction route to dispose of their assets because of its reliability, swiftness and ability to achieve the best price.
We did not, however, witness any examples of portfolio disposals as a direct result of the Budget, so the panic selling claims reported by some national media over the past six months were, in my opinion, exaggerated. The fact that the much-feared capital gains tax hike on second homes never materialised also played a role in limiting the negative impact of the Chancellor’s measures on the property market.
What was the overall significance of the new fiscal measures unveiled in October for our market? A net increase in instructions, and, because the measures were not as punitive as some had expected, the residential property sector in 2024 continued to be seen as an attractive investment option by many.
Who was buying?
A large number of purchasers were repeat ones – cash-rich portfolio holders who were paying close attention to income-producing opportunities. But, contrary to what some may have expected, we also saw a surge in new market entrants – mostly small, locally focused landlords, across a range of age groups and backgrounds. Despite the abundance of other accessible investment opportunities, residential property has retained its appeal, being a relatively well-understood and crucially, tangible asset class, providing owners with an opportunity to be as hands-on as they would like.
Some lot types were certainly more in-demand than others last year. With income-producing investments being especially popular, we saw a noticeable uptick in interest in the sub-£250,000 residential market, particularly in areas such as the north east and north west of England, where one can typically find higher yields. In addition, cheaper properties often don’t require as much leverage, which is a significant advantage in an environment of high interest rates.
More experienced buyers were still able to identify appealing development opportunities, but with high build costs, the cost of finance and general uncertainty pricing in this sector was incredibly sensitive.
What should investors be looking out for?
London may be one of the most expensive cities in the world to buy a property but many still believe it to be undervalued. As such, those looking to buy and hold for a long period of time may want to keep a closer eye on residential investment opportunities in the capital, especially given the enduring appeal of city living, relatively unscathed by Covid, and the renewed focus on getting employees back into the offices demonstrated by some large corporates. Commuter-belt locations, employment hubs and cities/towns with high-quality educational establishments will also continue to be in high demand and command a premium.
For those chasing yield and income, looking further afield may be a more sensible tactic and an opportunity to build up a portfolio over time due to lower property values.
Despite Labour’s intention to build more and quickly, a real change in the volume of housing stock, both private and affordable, will take a while to materialise. In the meantime, the country continues to experience an acute shortage of homes, and the recent surge in migration will only contribute to that, which means that temporary accommodation which can be let out to the government will continue to be in high demand. And finally, repositioning opportunities via permitted development – with a large supply of redundant office stock, there will be no shortage of lots with potential for conversion to residential use.
What is the market going to be like in 2025?
The market environment in 2025 should not be too different from 2024. Rates will likely remain on the downward trajectory, but any decreases will be slow and incremental.
With many businesses now facing an additional burden of higher employee national insurance contributions and increases to the minimum wage, some will have no choice but to pass these additional costs onto consumers, which will make it difficult to rein in inflation. How that will impact the Bank of England’s monetary policy remains to be seen, but we expect a busy 2025 due to our buyers’ willingness and ability to transact in cash and, of course, the fact that we’re a nation obsessed with property.