Prices up. Confidence up. More cash buyers of investment property. Rents are rising.
Recent property investment news points to a strange phenomenon in the UK residential property market. Around the time of the EU Referendum last year, all the property gurus and economic analysts were warning of a house price crash if the UK electorate voted to leave the EU.
The Treasury told us that house prices would tumble by 18% in the immediate aftermath of a Brexit vote. Zoopla said that Brexit would wipe out five years of house price growth. It said property investors and homeowners would lose as much as £1.5 trillion.
In October, we warned that property investors shouldn’t believe all they read in the newspaper. That article was prompted by some preposterous and panic-inducing reporting of the lowest possible standards. Investment news had plumbed the depths.
Now, more than six months after the EU Referendum, the real effects of the vote to divorce from the EU are being seen. This week’s investment news may surprise you.
Property prices are up, and up highest in pro-Brexit regions
ONS house price data released on 14th February 2017 showed how the UK property market had fared region-by-region since the vote for Brexit. There is a clear Brexit effect: property prices are rising faster where people voted to leave the EU.
The three regions that voted to remain in the EU have seen the slowest rate of increase in property values. London and Northern Ireland price growth have been modest. In Scotland, property prices have fallen by 1.2% over the last six months.
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Elsewhere, property prices have risen by at least 3% since June 2016. The best increases are in the East of England. There, where some of the highest pro-Brexit numbers were recorded, the average house price has increased by a whopping 4.25%.
Clearly, people who voted to leave the EU are facing the future with more confidence and greater optimism. This optimism has been translated into confidence for future house prices, too.
House price sentiment reaches post-Brexit vote high
It’s now seven months running in which households’ confidence in the UK property market has increased. February’s reading in the Knight Frank/IHS Markit House Price Sentiment Index is now at its highest level since the EU Referendum.
In ten of eleven regions, people believe the value of their home increased in February. Homeowners and property investors in all regions now expect the value of their property to be higher in 12 months than it is today.
Investment property prices are benefiting from a whirlwind of positives:
- Employment levels are at record highs
- Wages are increasing faster than inflation
- Mortgage rates at (or near) record lows
- Economic growth forecasts have been increased
In some regions, including the Midlands and East of England, sentiment for the direction of property prices is now higher than it was before the EU Referendum. This confidence has translated into increasing numbers of property investors buying with cash.
All-cash purchase of investment property at a 10-year high
All-cash buyers of investment property reached its highest level in January 2017 since records began in 2007. 61% of property investors paid in cash. It compares to 41% in 2007, and a previous peak of 58% in 2010.
In the North West of England, where property prices are far lower than in the South, 70% of investors are paying for their investment in cash. London property investors are the most likely to use buy-to-let mortgages to fund their investment.
This increase in all-cash buyers has been fuelled by the long-term growth in property prices. Buy-to-let investors sell an investment property an average of 17 years after purchase. As the tax relief on buy-to-let mortgage interest reduces over the coming years, it’s likely that more investors will use the proceeds of a property sale to fund their next property purchase.
More buy-to-let landlords are raising rents
As we predicted in our Autumn Statement 2016 Comment, more landlords are raising rents in response to increasing buy-to-let costs.
In January 2017, rents were 2.6% higher than a year earlier. That’s the fastest rate of increase in January for two years. More than a third of landlords increased rents when signing a new tenancy. That’s up from 27% in January 2016. Rents rose fastest in:
- Wales (+8.8%)
- South East (+8.2%)
- East of England (+7.8%)
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