Economic and property market update for 2024 - Total Landlord Insurance

December 21, 2023
Total Landlord Insurance
Economic and property market update for 2024 - Total Landlord Insurance

Read an interactive and user-friendly version of this guide below.

The forecasts for 2023 versus what’s actually happened

In 2022, the post-pandemic property market truly defied expectations. Average property prices and rents, which were predicted to see somewhere around three to four per cent growth, went up by double digits. And this was despite a bad global and local economy, with a cost-of-living crisis, slow GDP, negative real wage growth, high inflation and a bank rate on the rise.

But what about 2023? Well, the year saw the rental and sales markets move onto different trajectories, with average rents continuing to rise at a record-breaking rate, while house prices started to fall – although by no means as much as anticipated.

The drop in both prices and transaction numbers has been caused by a combination of the continuing high cost of living and rising mortgage rates. For more than a decade, borrowers had become used to interest rates of just one and two per cent being available, so when the average mortgage rate shot up to almost six per cent in December last year, it was a huge shock – especially to people who were coming off low five-year fixed deals.

It has been felt that buying and moving have become more expensive, even though mortgage rates have now headed back to their long-term norm. Nevertheless, this has reduced the number of people that can afford to buy and spooked others. That’s reduced overall demand, while listings have returned to the higher levels we saw prior to the pandemic.

Let’s take a look in more detail at what was forecast for both the economy and the property market in 2023 versus what actually happened.

UK forecasts and actuals (to date) for 2022 and 2023

The table below shows that although there is some way to go to go until we have a healthy economy, the tide is turning and there are positive signs. GDP is either showing slight growth each quarter, falls or is static; and wages have increased by significantly more than was expected. Unemployment is lower than was forecast, and while both inflation and the bank rate are slightly higher than was predicted, it’s not by much.

Compared to forecasts for 2022, the experts were much more accurate.

As for the property market, this time last year many doom-mongers were suggesting the post-pandemic boom was well and truly over and that prices could fall by 10-15% in 2023, with some even predicting 20% or more. Rent growth was expected to drop back to ‘normal’ levels of two to three per cent growth and transactions were predicted to be lower than in 2022.

In reality, transaction numbers have been roughly as expected, sitting lower than the long-term average at around one million for this year. However, average prices have held up relatively well and although there is now negative growth, there certainly hasn’t been a ‘crash’. And it’s important to bear in mind that this slight dip is against the backdrop of an excellent increase in capital values that the majority of property owners saw between 2020 and 2022, especially for those that owned a house as opposed to a flat. ​​​​​​​

Meanwhile, the rental market has remained strong, mainly thanks to the continuing imbalance between supply and demand across most of the UK. According to ONS figures, in the 12 months to October 2023, rent growth in the private sector outstripped inflation for the first time, versus the long-term trend of rising at just below inflation:

  • UK as a whole: +6.1%
  • England: +6% (ranging from +6.8% in London to +4.7% in the North East)
  • Wales: +6.9%
  • Scotland: +6.2%

For more on what happened in 2023 and the implications for landlords‍, see our month-by-month round up of the year.

What are forecasters suggesting will happen in 2024 and beyond?

The rate of inflation and the Bank of England base interest rate are the two most important indicators as to how the property market as a whole will perform. Meanwhile, employment levels and wage growth are particularly significant for the rental market, as rental prices tend to track income and affordability.

The good news is that, in the main, the economy is on the up even though the figures for each quarter can fluctuate.  On average, the forecasts versus this year’s figures are:

So, while the experts believe wage growth and employment levels may dip next year, the outlook for the broader economy is positive. GDP should continue to slowly recover; the rate of inflation is expected to more than halve and the base rate should begin to come down.

Of all the economic forecasters, Capital Economics has been one of the more consistently accurate in the past for inflation and base rate forecasts, and they are more bullish about how they expect the economy to perform over the next couple of years. They’re predicting that by the end of 2024, inflation will fall to 2.4% and the base rate will drop to 4.75%. And by the end of 2025, their forecast is that inflation will be at 1.3% and the bank rate three per cent. Against that picture, we expect average mortgage rates to be around four to five per cent – around one per cent lower than they are currently.

What is likely to happen to property prices?

Given that the widespread predictions of a 10% drop in prices in 2023 didn’t materialise, and with things looking up for the economy, the forecasts for 2024 are more circumspect. Average prices are predicted to keep falling, but not by very much, and transaction numbers are expected to pick up. ‘Normal’ demand levels will only return when the base rate falls back to around four per cent.

When you take into account that some property values have increased by as much as a third in the last three years alone, these relatively small falls shouldn’t have much effect on those that have owned their properties since before the pandemic. And the four to five-year forecasts are for strong growth to return, although it’s important to note that they are mostly below inflation rises.

For those that own a property with 100% cash, it’s worth running the numbers over the next few years to check your investment will grow at least in line with inflation – or, ideally, rise above it.

However, these blanket averages are really not that useful when it comes to your own individual properties. For instance, houses have seen much better growth than flats for some time now, so any ‘average’ that doesn’t take this into account should really be ignored.

The reality is, as a landlord, you need to check whether your individual property investments are actually delivering real investment returns rather than ‘nominal’ growth. If the value of your properties isn’t rising on average by more than three per cent a year and you don’t have a mortgage, you may actually lose money over time, particularly when you take into account buying and selling costs and the tax you pay.

Impact of the 2023 Autumn Statement on the property market

In November, the Chancellor announced the contents of the Government’s Autumn Statement. Landlords and agents had been hoping for a review of both the purchase tax on additional properties and mortgage interest relief, to improve returns and encourage much-needed investment in the private rental market. But there was virtually nothing to help the property market directly.

Two small positive announcements were:

  1. The Mortgage Guarantee Scheme, which supports 95% LTVs, has been extended and will now remain open for applications until the end of June 2025. This should help first-time buyers and those with low deposits buy homes and keep the market moving.
  2. The Government intends to allow houses to be turned into two flats via permitted development. Although a consultation needs to take place and more information is required, this is potentially good news for investors.

But the main boost for the property market comes indirectly from increased government support for those on the lowest wages, From April 2024:

  • Local Housing Allowance, which has been frozen since 2019, will be increased to cover the lowest 30% of local rents. That will give around 1.6 million households an average of £800 a year in extra support
  • Benefits in England and Wales will go up by 6.7%
  • The National Minimum Wage will rise from £10.42 to £11.44 an hour for those aged 21 and over

And all workers should see a slight improvement in their take-home pay, as a result of cuts to National Insurance:

  • Employed NI costs are reducing from 12% to 10%
  • For self-employed people, which includes landlords:
  • Class 2 NI is being scrapped, saving tax payers £3.45 a week
  • The cost of Class 4 contributions will drop from nine per cent to eight per cent

All these changes should give people a little more money in their pocket and help tenants, particularly those receiving benefits, to afford their rent, reducing the chance of landlords having to deal with arrears. Read more on renting to tenants on benefits.

What are the forecasts for rental income?

One of the best things about being a landlord is that you can make money from property in two ways: capital growth and rental income profit. And the good news is, although average capital values are falling back, it’s highly unlikely that the money you have made over the last few years will be wiped out.

The strong rent growth we’ve seen over the past couple of years looks set to continue. The leading rental market forecasters expect we will see rent growth across the UK at between five and six per cent in 2024, exceeding wage growth. This is because, regardless of affordability being stretched for some tenants, a worsening undersupply of rental stock will naturally keep competition and therefore prices high.


What’s behind the continuing undersupply of rental accommodation?

A combination of a rising number of tenants looking for accommodation and the number of new landlords entering the private rented sector failing to compensate for the number leaving, has led to the current crisis.

There are various reasons why landlords are choosing to sell up. Some have owned property since the early days of buy to let and have simply come to the end of their investment journey. Many have built a significant amount of equity over the last 20-25 years and are now looking to retire.

Others have felt forced out through increased taxation and legislation – and, more recently, increased mortgage costs. HMO landlords have been particularly badly hit because of the additional rising cost of utilities.

Meanwhile, the increased stamp duty for additional properties and lower potential profit margins has done nothing to either attract new landlords or encourage existing landlords to expand their portfolios. 

All that said, there is undoubtedly still money to be made from providing good quality rental accommodation. If rents continue to outstrip inflation as forecast, that’s good news for landlords’ rental profits, and with capital values also set to increase at a healthy rate, that should boost overall returns. They key is to work with local market experts who can help you invest and let successfully (see sections below).

The importance of keeping your building insurance up to date

Building insurance covers the cost of rebuilding your property if it suffers damage – right up to it having been completely destroyed. In ‘normal’ times, your rebuild value and premium is likely to increase gradually each year (usually by around three per cent), to reflect the steadily rising cost of labour and materials.

However, with rebuild costs having spiralled over the last couple of years - firstly as a result of the pandemic and then due to the recent high rate of inflation - it’s vital to make sure your policy still provides adequate cover.

The best way to do that is to have an ‘index linked’ landlord insurance policy. This makes sure the rebuild cost for your property is automatically adjusted, so you don’t have to review it yourself and the value of your policy is always protected against rises in costs in the wider economy.


While index linking gives you peace of mind you’re always properly covered, the bad news is that when costs increase by a lot, so does your premium.

“Nine out of 10 properties are insured for the wrong amount, with the majority of these being underinsured. The latest research by Rebuild Cost Assessment (RCA) shows that while 13% of UK residential properties are overinsured, 82% are underinsured, which can severely reduce the amount paid out following a property damage claim.  According to RCA, on average underinsured buildings are covered for just 63% of the amount they should be. So I would recommend that you make sure your property is fully covered and that your sums insured are still adequate.”

Steve Barnes, Head of Broking at Total Landlord

If Labour wins the next general election, how could that impact the private rented sector?

From a landlord’s perspective, while things have been challenging under the Conservatives, things could get even tougher if Labour come to power.

Labour is very much supportive of increasing protection for tenants and has made clear its commitment to making sure landlords can’t evict tenant without a good reason and plenty of notice.

In November 2023, Deputy Leader Angela Raynor promised that if the party won the next general election, it would “implement a full and immediate ban” on no-fault evictions. Labour has already created its own Renters’ Charter, which goes further than the Renters (Reform) Bill in its proposals for reform. Plans include:

  • Scrapping Section 21 as soon as possible
  • Ending automatic evictions for rent arrears – which would mean no longer including serious rent arrears as a mandatory ground under Section 8
  • Introducing a four-month notice period for landlords
  • Including the right for renters to make "reasonable" alterations to a property and have pets

The party is also committed to upgrading every home to EPC standard C “within a decade”. Although no further details have been released yet, it’s possible that private landlords may be required to meet that minimum rating sooner.

How does all this impact landlords and buy to let investment?

This really depends on what your objectives are for your property or portfolio in 2023.

If you’re looking to sell, you have two choices. You could cash in now, accepting that the ‘froth’ has come off the market and you may have to sell for slightly less than the property would have been worth last year. However, with Section 21 still in place, you can legally ask the tenant to leave.

On the other hand, if the investment returns still stack up well and you can keep letting the property at a good level of rental income, you could wait until the market picks up again in order to maximise the value when you sell – which is likely to be from 2025.

But it might be better to sell sooner rather than later. Property prices aren’t expected to recover for a few years – and things may get worse than forecast if there are further shocks to the economy.

If you’re planning to hold your investment and own it outright, then you may just see good increases in your rental income. However, it’s important to be aware that your tenants may be feeling the financial squeeze. That might mean they simply won’t be able to afford any rent rises or, worse, they may get into financial difficulties and not be able to pay your rent at all. Read our article for advice on how to increase the rent to align with market levels

For landlords looking to expand their portfolio, 2024 may be a good year to secure a few bargains from motivated sellers. The gap between stock and tenant demand is highly unlikely to close any time soon, and if government plans to allow houses to be turned into flats via permitted development (rather than having to apply for full planning permission) move ahead, there may be additional investment opportunities.

If you are renovating or upgrading a property, do continue to make sure you drive as good an EPC rating as possible. Although the pressure of a minimum ‘C’ rating deadline is off for now, this is likely to change again in the future. Making improvements both while you renovate and over time, can spread the cost of works and help avoid any supply issues that might crop up nearer the time of any new rules coming into force.

And don’t forget, it’s a great way to attract and keep the best tenants as they will have lower utility bills and be more likely to be able to afford your rent.

For ideas and advice, see our ultimate guide to having an eco-friendly property.

Work with local experts

Despite everything that’s happened in the economy over the last few years, property has proved to be more resilient than expected and forecasters are positive about the future of the market.

However, the economy is not out of the woods yet, and with a general election coming up in the next 12 months and the contents of the Renters (Reform) Bill still being hashed out, there could be more upheaval ahead for the private rented sector.

The most important thing for you as a property owner and landlord, is to focus on what’s happening in your local market and try to ignore any ‘shock’ headlines that we’re bound to see over the coming year. National averages and broad statements about what’s happening in the country as a whole might bear no relation to what’s happening on your doorstep.

As always, the best way to make sure your own investments continue to meet your financial objectives is to work with qualified agents in your area that are dealing with buyers, sellers, landlords and tenants every day. Keep track of your returns, making savings and rent increases when and where you can, and stay in touch with your local experts, who can help make sure you’re in line with – and ideally beating - local averages for yield and prices. For more advice read our ‘Ultimate guide to buy to let property investment’

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