Helping you to decide where to invest in UK property
It’s always fun to look at what others are forecasting for UK residential property prices. And it’s, even more, fun to look back on their forecasts and see just how wide of the mark they’ve been. About this time of year, we start getting the forecasts coming through for the next year. Savills have been generous with their early Christmas gift this year. They’ve told the market what to expect from property prices for the next five years. Remarkable stuff. Especially as they couldn’t even get 2017 right.
In this article, you’ll learn what Savills are forecasting for the UK property market over the next five years, and how you can decide where to invest.
Savills says London prices will rise, but slowly
Savills expects London prices to rise over the next five years, but far more slowly than the rest of the UK. While it cites continuing uncertainty over Brexit as being the main issue, it also points out the affordability issue (which we think is a far greater factor than Brexit, by the way). Currently, the average house price in London is selling at 12.9 times the average income. First-time buyers in London need a deposit of more than £100,000 before even contemplating if they can afford a mortgage.
Savills has forecast that house price growth will be most stunted in London over the next five years. OK, we get that. But then, as the average house price to wage ratio is twice in London as to what it is in the rest of the UK, this might not be such a difficult call to make. Especially when you then factor in comparative performance since the end of the Global Financial Crisis and ensuing recession.
Over the past ten years, the average house price in London has increased by 70%. In some areas of the UK, they haven’t increased at all. At some point, this divergence must narrow. Commuter towns, and cities like Birmingham, Leeds, and Manchester, look very attractive for property investment right now, for all sorts of reasons. Affordability is one, but add in the massive regeneration taking place up and down the country, and huge investment in transport infrastructure ensuring travel times to London will be slashed, and it’s easy to see why the appeal of living outside of London is growing.
Back to Savills. Specifically, Savills forecasts that London prices will fall by 1.5% in 2017 and 2% in 2018, before picking up. Over the five years to 2022, Savills expects the average London property price to be 7.1% higher than it is today.
Buy in the North, says Savills
Savills is more bullish about residential property prices in the North and the Midlands. It expects prices in the North West to be 18.1% higher in 2022 than they are today. They have pencilled in price growth of 17.6% for the North East and Yorkshire and Humberside, and 14.8% for the East and West Midlands.
Savills sees the biggest growth in all regions in 2020, the year after the UK exits the EU. Then it expects London prices to rise by 5% –the same rate as prices in the East and West Midlands, but at a slower pace than prices in the North.
Looking back gives us an insight into the futility of looking forward
Whenever I read forecasts from the experts, I always like to look at how their forecasts have panned out in the past.
Take this time last year as an example. Here’s what Savills said:
- In 2017, UK house prices will stand still
- In 2018, UK house prices will rise by just 2%
- In 2017, house prices in the North of England will fall
- Over the five years to 2021, the average UK house price will increase by 13%, to £241,900
At the beginning of 2017, house prices were still rising across the UK, though had slowed in London. Unperturbed, and after a 0.6% month-on-month increase in February, Savills went on the record again to warn that house prices were unlikely to remain on the trajectory of the Nationwide House Price Index – which had the average UK house price rising by 0.4% a month (on average) since 2014. Again, let’s cut to the specifics. Savills warned that:
- House prices were likely to fall in 6 of the 11 regions analysed by them during the remainder of 2017
- Prices could fall by 2.5% in the North East
- In the North West and Yorkshire, prices were likely to fall by 2%
- House price growth would be strongest in London, with prices in the South East and East of England rising by 2% and 2.5% respectively
I can’t make too big a comment on Savills’ five-year forecast made this time last year. Except, perhaps, that the average house price in the UK has increased by 4.6% between the end of 2016 to September 2017 (HM Land Registry data). Not a standstill, then.
And, this year, house prices have increased in all but one of the UK’s 12 regions.
And the property investment lesson is…
Don’t take any notice of the experts when they make property price forecasts. They can’t even get it right over a year, never mind five years. Savills isn’t alone in getting it wrong. In fact, 8 out of 10 ‘experts’ don’t get their forecasts correct. (See my article “Property experts – embarrassing predictions, UK experts who got it wrong”.)
Instead of listening to the property experts who get it wrong, it’s important to do your research. And don’t forget that the property market is very localised. For example, though London price rises have slowed, on a borough-by-borough level the picture is very mixed. In Redbridge, prices are up by 4.4% over the last 12 months. In Barking and Dagenham and Hackney, prices have increased by more than 3% over the same period.
I’ll make a prediction now. Over the long term, property in the UK will continue to be an incredible investment asset. Rental income will rise, and property values will increase. Probably by more than inflation. But not everywhere, every year. For the real detail, you need to get the magnifying glass out. And that’s what our researchers do.
We analyse 108 data points across 324 UK areas. It may just be the most comprehensive property analysis on the market today, and a research strategy that has consistently proved to uncover the best property investment opportunities in the UK. Ignore the experts and their predictions. Contact one of the Gladfish team today on +44 207 923 6100 to find out which locations offer the best investment potential.
Live with passion,