Get ready for a Brexit bounce in London property prices
Why London prices may rise, and where
Property investors should be preparing now for a bounce in London property prices when the UK leaves the EU. This is what several experts are now predicting for the London property market, with almost three years of experience of Brexit uncertainty behind us.
In this article we examine why the experts are so positive about the potential for property investment to produce great gains in the coming years, and we’ll also highlight a couple of locations where that potential could produce the best returns.
What is in store for London property in the next five years?
London’s property market has been the most sluggish of almost all UK locations since the EU referendum produced its surprise result in June 2016. Many experts predicted a crash in London prices, causing an exodus of financial firms from the City.
However, these predictions have proved wide of the mark. Additionally, the EU has altered its rules to allow European firms access to the London financial markets even in the case of a no-deal. But, without a doubt, those predictions and the uncertainty surrounding Brexit affected the London market, especially at the high end.
JLL is among those who now expect a post-Brexit bounce. It forecasts that, between Brexit day (29th March 2019) and 2023:
- The average price of new build homes in Zones 1 and 2 will rise by almost 18%
- Luxury property prices will rise by 15.3% in Central London
- The average price will rise by 14.3% across Greater London
Why could property prices in London rise?
JLL expects a Brexit deal to be done, in which a transition period smooths the path to final exit from the EU. This, it says, will lead to a more stable and confident economy. This will encourage homebuyers and investors to return to the market. As job security returns, property values will rise faster, it says.
We’ve got to put this reasoning into context, though. There are currently no forecasts that the UK economy will crash post-Brexit. GDP is expected to grow by more than 1.5% in 2019, and rise to 2% and above in the two years after. Wages are expected to continue to grow faster than inflation.
But it is not only the economy that dictates house price direction. There is a chronic shortage of homes in London. The Mayor of London has a target of 66,000 new homes each year. Developers are currently delivering around 20,000 to 25,000 new starts each year. That’s a massive gap between supply and demand, and a lot of pent-up demand in a city whose population is forecast to grow by almost two million in the next 23 years.
Will there be a boom in London house prices?
As recently as 2014, London property prices increased by as much as 20% in a single year. It’s clear that those days are now gone. If the Brexit deal finally turns out better than expected, the cork could be released from the bottle of pent-up demand. But a rapid bounce in property prices is less likely today than in the past – the government’s property tax reforms and more regulation have dampened buy-to-let interest.
So, while we may not see a sudden boom in property prices in London, there is likely to be a more measured return to a rising market. The question is, where might it be best to invest for growth in London?
Look for growth potential in London property locations
Recent research from Dataloft and property developer Mount Anvil (and published in Homes and Property) suggests that the best locations to buy will be those that are benefitting from regeneration and offer apartment living. In such areas, average prices rose by around 17% between 2012 and 2016. Boroughs such as Tower Hamlets and Newham performed particularly well.
London property plays well for the greater investment emphasis on capital growth, as the tax advantages of rental income have been eroded. So, where might that capital growth be found in London?
Outer London is hot
Some of the hottest areas for investment in London property are found in Outer London right now. Boroughs such as Redbridge and Merton have bucked the trend of sluggish house prices in the capital. With 24-hour underground services, massive infrastructure investment and regeneration, these areas in Outer London are gaining in popularity with buyers and renters attracted by greater affordability.
A few ideas for your investment location research
London property investment benefits from a wonderful basket of strong fundamentals. The question is, where are the best locations to invest in the capital? Here are a few key locations which we believe could produce above-average returns in a market returning to growth:
- In East London, our favoured locations include Tower Hamlets, Hackney, Redbridge, and Waltham Forest
- Locations that are likely to benefit most from infrastructure projects include those on the Crossrail 2 route, such as Haringey, Wood Green, and Battersea
- We also think that Canary Wharf, Woolwich and Aldgate are attractive for investors
To find out where our research tells us are the best investment opportunities in London as we move through the final stages of Brexit, get in touch with Gladfish today.
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