Is the tide of property prices turning in the UK’s regional cities?

Here is why regional city property prices could now outshine London

If you want to know which cities in the UK might offer the best property investment opportunities over the next four or five years, new research by Hometrack could offer some answers. It also agrees with what our analysis has been telling us: that regional cities are making a strong comeback in the property investment stakes.

The price gap is closing between the regional cities and London

Cities like Birmingham and Manchester are set to outperform UK national average growth in property prices over the next four years. That’s the conclusion of the latest Hometrack UK Cities House Price Index. These cities are expected to close the growth in London by 20% to 30%. Property prices in other cities (like Oxford and Cambridge) are also expected to grow at a slower rate than Manchester and Birmingham.

It won’t be new news to hear that London’s property prices have stagnated over the last 12 months. The Hometrack index puts them just 1.6% higher than at the same time in 2017. Meanwhile, other cities have seen their average property prices soar. For example:

  • In Birmingham, property investors have enjoyed the capital growth of 7.3% in the last year
  • Investors in Manchester have witnessed price rises averaging 6.7% in the last 12 months

This contrasts with the property investment experience of the last decade, during which time:

  • House prices in London have rocketed by 86%.
  • Prices in Bristol, Oxford, and Cambridge have increased by more than 70% in the same period

Prices in other regional cities – including Newcastle, Manchester, and Birmingham – have hardly budged in comparison. The tide is turning.

Why does the future look rosier for cities like Manchester and Birmingham?

In making its analysis, Hometrack found that cities outside the South of England have the most potential to grow most strongly in the next few years. It doesn’t think that London prices will match the growth rate of the past. In particular, Hometrack points to lower rental yields (less than 4.5%) and affordability as being problematic for property prices in London. It believes that London could suffer from an oversupply of residential property in the short to medium term.

Hometrack’s Insight Director, Richard Donnell, said, “The income to buy a home in regional cities is well below the London average, so in the near term, we expect to see rising house prices stimulating additional buying and market activity in those areas.

“House prices have some way to increase before there is a material constraint on demand. This assumes mortgage rates remain low by historic standards and economy continues to grow.”

However, we believe there are more fundamental reasons to invest in Birmingham and Manchester right now.

Three reasons to invest in property in Manchester and Birmingham

1.      Population growth

The populations of Manchester and Birmingham are growing faster than most other areas of the country. People are being encouraged into these cities by their strong local economies, which are creating incredible job opportunities.

Population growth increases the demand for homes, and this puts an upward pressure on property prices.

2.      Infrastructure and regeneration

London has benefitted from infrastructure and regeneration projects such as Crossrail and the redevelopment of Old Oak Common. High Speed Rail (HS2 and HS3) promises to ignite demand for property in the Midlands and the North similarly.

In Birmingham, local transport is being upgraded to accommodate a more flexible commuter base in and out of the city. Shopping centres and inner-city residential areas are being transformed by large-scale investment in regeneration projects.

We are seeing a similar story in Manchester, where the focus is on the regeneration of town centres and a smarter and cleaner transport system.

What we’re witnessing in cities like Birmingham, Manchester and Leeds is an unprecedented investment into infrastructure:

  • Industrial, office, and commercial space is being provided to house new and growing businesses, especially in the digital and knowledge economy
  • Retail space is being upgraded and reinvigorated
  • New developments are being built with access to amenities and services such as health, education, and leisure

As all this infrastructure is planned and developed, property prices are likely to rise.

3.      Cities are planning more smartly

There is something else happening in these cities, which hasn’t happened before. They are getting smart with their city planning. As power is devolved from central government, the local authorities of these cities are planning more creatively and innovatively.

Right now, property investors may be in a window of buying opportunity that will not be repeated. To discover where you should be investing, get in touch with Gladfish on +44 207 923 6100.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
March 19, 2018

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