What’s in store for property investors in 2017 and beyond
A short while ago I asked the question “Is off-plan property a good investment in 2017?” In the two articles that tackled that subject, you’d have discovered how the pessimistic analysts (and that was most of them) based their snap forecasts of a collapsing UK property market on the Brexit effect. That fact, they told us, would lead to swift and sharp economic collapse in the UK.
Since the EU Referendum surprise, it’s become pretty clear that the UK economy isn’t going to crumble. In fact, all the economic numbers have shown us the opposite is happening. Wages are rising, unemployment is falling, and growth is back on the agenda. I’ll reiterate what I said in those articles about the UK:
- The UK is the fifth largest economy in the world. Brexit probably won’t change that.
- European companies export more to the UK than any other country. That’s unlikely to change post-Brexit.
The question I want to tackle in this article is what is the outlook for UK residential prices in 2017 and beyond? Our investment research indicates that there could be some great property investment opportunities for you to take advantage of over the coming months.
The post-Brexit fall and rise of investment property prices
There was a definite backlash to the Brexit vote. Or was there?
Here’s how the Nationwide House Price Index has measured the UK housing market immediately before and after the Brexit vote:
House price growth has moderated since the beginning of the year, but it doesn’t look like a slowdown in growth caused by Brexit. And if you looked back to this time in 2015, year-on-year house price growth is higher than it was, as is the rolling three-month growth.
To get to the bottom of what’s been happening, we’ve got to look a lot closer at the facts and remove the emotional side of the argument.
Why did house prices move the way they did between March and August?
March was a stunning month for UK residential property investment. Transaction numbers leapt, and annual house price inflation rose to 5.7% – the highest rate of property price inflation for more than a year. The reason for the huge demand in property investment wasn’t to beat the Brexit vote; it was to beat the new stamp duty tax. Thousands of planned purchases were brought forward from May and June, to avoid the increase in stamp duty tax. The extra demand pushed house prices up.
After the beginning of the new tax year, demand for investment property subsided – the next few months’ planned purchases had been rushed through already. I’m surprised that house price growth didn’t fall further than it did. For me, this is a clear numerical indication of just how strong the underlying market is in the UK – and that’s proof of the long-term property investment opportunities that exist across the country.
The latest property market news gives us a better idea of where the best places to invest in property UK are, at least in the short term.
Halifax says that property prices are rising at their fastest since March
On 7th November, Halifax released numbers that showed UK house prices were rising at their highest rate since March. That contrasts with Nationwide’s index result (which showed price growth flatlining). It’s also significant because Halifax had reported falls in July and August.
What both indices are agreed on is that the rate of annual house price growth across the country has slowed since March, though it remains robust. Apparently, the Brexit vote hasn’t crushed the market for property investment in the UK. We predicted right off the bat after the EU Referendum that foreign investment in UK property would increase, and that off-plan property (especially in London) represented some fantastic property investment opportunities. With the fall in the value of the pound, I felt that was pretty much guaranteed.
What is underpinning the current property market in the UK?
Some factors are underpinning UK property investment and will continue to do so. This include:
- Demand for homes continues to outstrip supply
- The Bank of England reduced interest rates post-Brexit, and that has reduced mortgage interest rates
- Three is a record shortage of homes on the UK market (RICS)
With this background and the demand for property normalising after the surge in March and subsequent lull, mortgage demand has increased. The Bank of England reported that mortgage approvals rose to a three-month high in September. RICS has said that buyer enquiries are at their highest since February.
Affordability is the key to property prices in 2017
If you look closer at the house price inflation numbers from the three main indices (Nationwide, Halifax, and the Office for National Statistics), there is a theme beginning to emerge. That theme is affordability. House price growth is slowing down in some cities while gathering pace elsewhere.
London house prices, which have spearheaded the UK property investment market for a decade or more and led the charge back after the Global Financial Crisis, are now growing more slowly than the UK’s 19 other big cities. In London, the average house price increased by just 0.9% in the three months to September. For the first time in a long time, the supply of new homes in London outpaced the number of sales, according to Hometrack.
A year ago, London property prices were growing at a rate of around 10% per annum. It looks like its slowing to around 5% by the end of this year.
In the rest of the UK, property prices in large cities are growing at an increasingly fast pace. Cities like Manchester, Liverpool, Birmingham and Bristol are growing at a pace averaging 10.2% per year. Houses in the regional cities are more affordable. Economic growth is improving. Low mortgage rates are helping to stimulate demand.
The opportunity for property investment
The London market isn’t going to collapse, but property investors have an excellent opportunity to diversify their property investment out of the capital. People still want to buy homes but are less able to do so. According to research from PwC, in 1990, buyers had to save for two years to be able to afford the deposit on their first home. In 2000, the time to save had increased to six years. Today, first-time buyers will need to save for 19 years to buy a home.
For buy-to-let property investors, the long-term nature of renters saving for their first home is now a compelling argument. Imagine getting a great tenant and that tenant remaining in situ while they save for their first home.
Looking forward to 2017
At this moment in time, it sounds like the UK economy is going to grow again in 2017, although a little below trend. That could keep a cap on house prices, especially in London. However, there is still a huge demand for homes and 2017 could turn out to be a year when savvy property investors take a breather in the property market as the opportunity to invest for the long term.
Buy-to-let investors could find great pockets of property investment opportunities, where the property fundamentals of shops, schools, transport links, major employers and major investment remain intact.
My best estimate for UK investment property prices in 2017 is a range somewhere between 0% and 2% higher in December 2017 than they are today. There will, of course, be pockets of strength and weakness. Moving on through 2018 and beyond, price growth will probably return to more normal levels (the average house price in the UK has increased by an average of around 8% to 10% for a hundred years).
The slowdown in house price growth is all part of the property and economic trend. By employing the right strategies through the cycle, you could profit from property investment at every phase as you build up a substantial property investment portfolio. Download my book “UK House Price Predictions” to discover more about the property cycle and how to minimise risks with proven principles and strategies.
In the meantime, feel free to contact one of our team on +44 (0)207 923 6100 to discover how to research the very best places to invest in property UK.
Live with passion
Brett Alegre-Wood
