Capital appreciation forecast to remain very low for years ahead

Capital appreciation forecast to remain very low for years ahead

Connells Group predicts that UK property capital appreciation will stay subdued for the foreseeable future, with limited price growth expected as mortgage costs and market activity remain constrained.

Connells Group, the UK’s largest estate and lettings agency conglomerate, has issued a forecast indicating that capital appreciation in the housing market will remain very low for several years. This outlook comes amid ongoing challenges such as high mortgage rates and reduced transaction volumes, which are affecting buyers’ ability to move and invest. The forecast is particularly relevant for landlords and letting agents who may have been hoping for property value increases to offset rental income pressures.

Aneisha Beveridge, research director at Connells Group, highlighted that the anticipated rise in home moves has failed to materialise, with transactions falling due to mortgage affordability constraints and weakened buyer confidence. Despite this, widespread price falls have not occurred, supported in part by wage growth and inflation reducing house prices in real terms. However, the overall expectation is that capital growth will be very modest, if any, over the next few years.

Details of the forecast and market conditions

The Connells Group report notes that the housing market has not experienced the expected pick-up in activity during 2026. Higher mortgage rates have squeezed buyer budgets, leading to a significant reduction in transactions—around 100,000 fewer than forecast at the start of the year. This slowdown in sales activity means fewer opportunities for landlords to sell properties at a profit or to capitalise on rising values.

While the volume of moves has dropped, this has not translated into widespread price declines. Wage growth has helped maintain household affordability, and inflation has contributed to reducing house prices in real terms. Nevertheless, the overall environment is one of stagnation rather than growth. Connells Group has not yet issued forecasts for rental levels beyond 2026, leaving some uncertainty about the income side of the buy-to-let equation.

For landlords, this means relying less on capital appreciation to enhance returns and more on rental income, which itself may be under pressure from affordability constraints on tenants. The subdued capital growth outlook reflects broader economic challenges, including interest rate levels and inflationary pressures, which are likely to persist in the near term.

Context for landlords in the current UK rental market

The forecast of very low capital appreciation aligns with a period of adjustment for the UK rental sector. Recent legislative changes, such as the Renters’ Rights Act, and ongoing regulatory reforms have increased compliance costs and altered landlord-tenant dynamics. Meanwhile, economic factors like inflation and mortgage costs continue to influence both landlords’ costs and tenants’ ability to pay.

Historically, landlords have often relied on a combination of rental income and capital growth to achieve satisfactory returns on their investments. With capital appreciation expected to be minimal, landlords may need to reassess their investment strategies and financial planning. This could include focusing on improving property management efficiency, maintaining high standards to retain tenants, and carefully considering when to buy or sell assets.

Letting agents also face challenges in advising clients amid this environment. The lack of capital growth may reduce the attractiveness of buy-to-let investments for some, while compliance with new regulations demands greater attention to detail and record-keeping. Both landlords and agents will need to stay informed about market trends and regulatory changes to manage risks effectively.

Practical implications for landlords and letting agents

With capital appreciation unlikely to provide a significant boost to returns, landlords should focus on optimising rental income and managing costs. This includes reviewing rent levels in line with market conditions and tenant affordability, ensuring properties meet all safety and compliance standards, and maintaining good tenant relationships to reduce turnover and void periods.

Landlords with mortgage debt should also consider the impact of interest rates on their cash flow. The forecast suggests that borrowing costs will remain a key factor in investment viability. Remortgaging strategies may become more important, as indicated by other research pointing to a potential boom in buy-to-let remortgaging in 2027.

Letting agents can support landlords by providing up-to-date market insights and compliance advice, helping to navigate the evolving regulatory landscape. They should also assist landlords in documenting tenancy agreements, repairs, and communications thoroughly, as regulatory scrutiny increases under laws like the Renters’ Rights Act.

Uncertainties and what to watch going forward

While the Connells Group forecast is clear on capital appreciation, it does not provide projections for rental growth beyond 2026. Rental income remains a critical component of landlord returns, and its trajectory will depend on factors such as tenant demand, inflation, and government policy.

Economic conditions can also change unexpectedly. Interest rate adjustments, inflation trends, or shifts in housing supply and demand could alter the outlook for both capital values and rents. Landlords and agents should monitor official guidance and market data regularly to adjust their strategies accordingly.

Additionally, ongoing regulatory developments, including enforcement of the Renters’ Rights Act and potential new licensing or safety requirements, could affect operational costs and landlord responsibilities. Staying informed and prepared will be essential to managing these risks.

Considerations for landlords now

Landlords should review their portfolios with a focus on long-term sustainability rather than short-term capital gains. This involves ensuring properties comply with all current safety and licensing regulations, maintaining accurate records of tenancy agreements and communications, and assessing mortgage arrangements in light of interest rate forecasts.

Given the subdued capital appreciation outlook, landlords may also want to explore ways to enhance rental income through property improvements or targeted marketing to attract reliable tenants. Keeping abreast of market and legislative changes will help landlords anticipate challenges and opportunities.

Letting agents should support landlords by providing compliance resources and helping maintain thorough documentation. This is increasingly important as regulatory scrutiny intensifies and penalties for non-compliance become more common.

Supporting landlords with compliance and management tools

The Landlord Association (TLA) offers membership that includes access to compliance resources and practical information tailored to the evolving regulatory environment. TLA’s new property management and compliance platform, ORBIT, currently in BETA testing, is designed to assist landlords and letting agents in organising portfolios, managing rental documents, and recording key actions such as repairs and inspections.

ORBIT aims to consolidate property management and compliance information in one place, helping members keep track of evolving obligations under legislation like the Renters’ Rights Act. While still in development, the platform offers tools to support landlords in maintaining evidence of compliance and managing tenancy documentation efficiently.

Exploring TLA membership and ORBIT BETA access can provide landlords and agents with practical support to navigate the challenges of a low capital growth market combined with increasing regulatory demands.

Looking ahead, landlords should prioritise compliance and tenant retention while monitoring market conditions closely. With capital appreciation unlikely to provide significant returns, effective property management and cost control will be critical for sustaining profitability.

Sources: Landlord Today