What now for UK politics? What now for property UK?
Investment news during the last week provides evidence that the tide has turned in favour of property investment in the commuter towns and regional cities. It also provides evidence of the damage that the increase in stamp duties is doing to the residential property market, with fewer homeowners selling or downsizing.
Fewer people are moving home
According to research from Connells Survey & Valuation, fewer people are moving home. It is adding to the shortage of housing stock in the supply chain, as older homeowners are remortgaging and using equity release rather than downsizing. The remortgage market has increased by 2% month-on-month in May, and now constitutes 23% of the mortgage market. It is a May record.
Reasons for the slowdown have been put down to three factors: a shortage of homes on the market; economic uncertainty caused by Brexit and the General Election; and the effect of stamp duty.
House prices are rising faster again
The rate of increase in house prices bounced higher in April. According to the Office of National Statistics and Land Registry, the average house price increased by 5.6% in the 12 months to April 2017. That’s up from the March figure of 4.5%. As measured by the UK House Price Index, the average house price now stands at £220,000.
House prices rose fastest in the East of England, where they piled on 8.1% in the year to April 2017. In the South West, the average house price rose by 6.8%. The area with the slowest rate of house price growth was the North East, at just 0.6%.
Buy-to-let investors are winners outside London
While Landbay Rent Check announced that rental prices have flatlined in May, closer examination shows that rents are diverging across the UK. The main loser in England is London. Six of the worst ten rental performances are to be found in the capital. Most negatively affected areas in London are Kensington and Chelsea (-3.1%) and Westminster (-2.7%). Further afield, Aberdeen rental values have collapsed and are down by almost 10% over the last 12 months. It is the worst rental performance in the UK, with rental demand adversely affected by the continuing woes in the oil industry.
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Commuter locations have performed well, with Luton, Thurrock, Peterborough, Medway, Bedfordshire and Swindon all posting rental value gains of between 3.4% (Swindon) and 5.2% (Luton).
What you can learn from this week’s property news
Stamp duty and costs of moving will restrict supply of homes
Fewer people are moving home, and this is a phenomenon exacerbated by economic uncertainty and the shortage of housing stock available. However, with stamp duty increases and the rise in house prices over the last few years, potential movers have begun to realise just how much moving home is likely to cost. A homeowner selling a £500,000 property to move into a £400,000 property not only has to stump up estate agent fees to sell (as much as £20,000), but also pay around £1,500 in removal costs, and a further £10,000 in stamp duty. That’s a total of £31,500 to release equity value of £100,000. The seller is left with £68,500. Remortgaging to release equity is far more efficient.
Expect fewer people to move in the future, and the remortgage market to continue to grow. We may also see more retirees and older people choosing to sell up altogether, and move into the private rented sector.
The UK property market is stable, despite Brexit scaremongers
While the surge in house price growth is to be applauded, we would expect this to fall back in the coming months before rising again. The April rise takes in last year’s slowdown caused by the increase in stamp duty. It will fall out of the equation over the coming months, and so put downward pressure on the annual rate of rise. However, with fewer sellers in the market, we also expect the supply/demand equation to remain positive for property prices in the UK.
Without a doubt, the Brexit scaremongers who predicted a collapse in residentialinvestment property prices continue to be proved wrong.
As property values and rental prices have increased in London, the rest of the country has been left behind. It is now changing. People are being attracted to the better value to be found in commuter towns. This divergence of rental price performance looks likely to continue, especially as better transport options become available thanks to infrastructure investment such as High-Speed Rail and Crossrail.
The poor performance of Aberdeen is proof of the need for property investors to be wary of investing in a location that is so heavily reliant on a single industry. In Aberdeen’s case, the oil industry is the area’s largest employer. When an industry comes under pressure, as the oil industry has, property prices and rental values tend to follow.
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