Hometrack, a research group which analyses the UK’s property market, has released a ground-breaking new study, showing where British residential real estate values have climbed over the past year and decade. Drawing on this research, Richard Carr asks: where are the UK’s next property hotspots?
The UK’s residential property market is going from strength to strength. Despite the UK’s recent decision to leave the EU, which many experts believed would dent market activity, the sector kept on growing. In a survey of Royal Institution of Chartered Surveyors members, 8% said they saw buyer enquiries increase since September 2016. In June, before the vote, 34% said that they experienced a fall in enquiries.
High, sustained demand has had a beneficial impact on British house prices, which have continued to climb during 2016. Figures show that average UK residential property are now eight times higher than the national average wage. Prices are higher in some regions than in others, for instance, the average London house price is a staggering 14 times more than the national capital’s average wage.
In their research, the Financial Times reports, Hometrack highlights that UK cities have experienced strong house price growth since the market crashed in 2008. They compiled a chart which shows that London, Cambridge and Oxford have racked up the largest gains, at +60% each. Commenting, Hometrack Research Director Richard Donnell said that “the economic boost from low interest rates and inward investment into south-eastern England, which has translated into higher residential values.”
Does this mean that these are the best British cities to buy residential property? Not necessarily. Following a 3% increase in stamp duty for some properties, price growth in these cities is now coming to a halt. Let’s look at London. By the end of the year, Hometrack expects house prices in the UK capital to increase by 6%. This is a significant drop, compared to an annualised 12.3% in the Office For National Statistics’ (ONS) July House Price Index and there should be a further 2% decrease by spring 2017.
Analysing these figures, the Financial Times notes that future house price growth is more likely to come from cities where values are closer to 2007 levels, but have the conditions needed to cultivate more robust increases. This includes low mortgage rates and unemployment, along with significant wage growth. Prices are more likely to increase in Manchester, Birmingham, Liverpool and Glasgow, as long as interest rates remain low and the national economy continues to expand, according to Donnell.
It is also important to note that first time buyers are responsible for a significant share of house price expansion, even in London. For the first time since the Recession, the Council of Mortgage Lenders (CML) recently found, first-time buyers loaned more money than home movers in London, Scotland, Wales and Northern Ireland, during the second quarter of 2016. These rises were far higher in Scotland (39%) and Wales (31%) than London (3%), indicating that these are markets to watch for investors going forward.
Finding attractive returns
With this research, Hometrack shows that investing in residential property involves more than placing capital into real estate which is expected to register strong price rises. It is key that investors look at value rises vs operating costs, in order to attain strong yields. It is clear that cities in various British regions, can provide strong yields to investors than the UK capital, where costs are extremely high.