Is now the time to invest in UK property?

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Market Update

Over the last 12 months, UK house price inflation was 7.4% an average rise of £17,000. Liverpool and Manchester led the way for UK cities with 10.7% and 8.7% respectively. The consensus for the Northwest continues and shows the value for investors in this region versus the south.

Why are we seeing this?

Supply / Demand

Demand for housing in the UK has been growing faster than the ability to supply. The population in the UK has been growing year on year, with mass migration being the dominant influence. The government aims to deliver 300,000 homes per year to keep up with demand. However, the graph below shows how the level of housing being built hasn’t met the stated amount.

Low interest rates

Low interest rates are increasingly encouraging for property investors and have forced property prices up. Since 1992, interest rates in the UK have fallen from 15% to 0.5%, making the cost of getting a mortgage much lower. Low interest rates mean investors can get a better rate of return than other investments. Also, people feel comfortable investing in UK property historically because of the physical asset and continuous demand.

Common Objectives / Concerns

"The bank of England has just raised the base rate of interest"

Following the recent increase in interest rates to 0.5%, it is important to discuss what we believe will happen to property prices. It is expected that house prices will continue to rise at a moderate pace this year, just below last year’s figures. But will mortgages still look favourable to investors? These days, people are more aware about mortgages and the options available to them because of the last financial crash. Such as, switching providers, or fixed long-term rates. In response to the fierce competition for business, last week Lloyds Bank announced the lowest ten-year fix on record at 1.66 percent.

"I'm concerned that prices are reaching their peak"

People are concerned about the UK property price growth reaching a cliff, and would rather wait until the market corrects itself before investing. Buying when the market dips to its low point is something we all dream of. The likelihood is if you keep waiting in this market to buy, it’s likely you will pay more than if you bought now. It is important to keep in mind that property is a long-term asset. On average, the price of a home doubles in the UK every ten years. Based on the 18-year property cycle, boom periods last on average for 7 years, and the UK has only just completed its first full year of a boom period. Using this data, we are still likely to see several years of growth before we enter a recession period and see prices drop. Although these figures are just averages and could swing in either direction over time, they have proven to be an important market indicator throughout history.

“Many areas and cities are overcrowded by new developments”

At 426 people per square kilometer, the UK is arguably the most densely populated country in Europe. A significant lack of land available to build on is faced by further restrictions, such as the preservation of greenbelt areas. Figures below show how supply and demand imbalances occurred last year. As can be seen above, there isn’t enough housing production to meet the 300,000 target each year. In addition, a recent report from urban bubble showed that last year there was the least amount of rental stock available in Manchester, a market considered being over-saturated with new constructions. Further proving the importance of a need for more supply.

Why the UK?

Investment into Cities

The consensus among investors over the last 2 years has been to stay away from cities. In contrast, according to a Zoopla report, demand for flats is the highest of any type of property across the country. Manchester has become the largest economy outside of London because of extensive investment over the past ten years. Due to the growing opportunities available, the student retention rate is also the highest outside of London. The majority of migrants to the city come from the south in search of a more affordable city life. Approximately 45% of Manchester’s population is under the age of 35 therefore, rents will continue to be in high demand in all areas of the rental market as a result of this demographic.

Stability

In the graph below, you can see the increase of housing prices in the UK over the last 50 years. This is mainly due to demand and supply, as over the same period, the population grew from 54,866,534 to 68,497,907 people. The UK population is projected to grow by 2.1 million over the next ten years to mid-2030, putting further upward pressure on property prices. Property is always going to be in demand as it is a very favorable asset class and people need a place to live. When you compare houses to stocks, the share price could fall to zero at any given time, whereas there is always going to be a value on property. 

Future projections

Savills’ property outlook indicates that the value lies in the north, specifically the Northwest. Based on their estimate, there will be 28% growth in this area over the next 5 years, making it the highest performing area of the UK. It is in these cities in the midlands and north of England where investors can look for the highest return on their investments.

 

For more insight into the UK property market and advice please get in contact with our team of experts.

Source: Zoopla, Urban Bubble, Economics help.

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