UK property investment continues to beat inflation, with more to come

Savvy investors are cleaning up in the UK’s property market

For the last few weeks, doom merchants have been posting investment news with sensationalist headlines warning of an impending market implosion. In these weekly investment articles, we’ve been analysing the news behind the headlines and giving you the real story.

A couple of weeks ago, Hometrack said that property investors are losing money in real terms on house prices. We told you that “most investors are beating inflation”. And that’s before rental income is taken into consideration. Official figures – not the guestimates by Hometrack and Rightmove on incomplete data sets – released this week confirm what we found to be the case. House price rises are still outpacing inflation, as they have done since the end of the Global Financial Crisis.

Not only are house prices rising faster than inflation, but mortgage lending is booming. And the mortgage market is so competitive that mortgage lenders have dropped their flat rate mortgage fees to record lows.

Official – UK house prices smash inflation

UK Property Transaction statistics released last week show that the average house price continues to rise by around 5% per year. May’s figure turned out at 4.7% higher than May 2016. Investors in the East of England fared best, with a growth rate of 7.5%, while properties in the East Midlands came a close second with a 7.2% rise.

On a month-on-month basis, property prices in the North East grew by a whopping 1.8%. Prices in London and the South East – where many pundits and newspaper hacks are headlining the end of the world – fell by a paltry 0.3%, but are still up by 3% over the last 12 months.

Mortgage lending is up

The latest analysis from UK Finance shows that mortgage lending hit £22.1 billion in June 2017. It is 3% higher compared to June 2016, and a very impressive 9% up on May 2017.

In the second quarter of 2017, gross mortgage lending was £60.3 billion. It is 6% higher than in the second quarter of 2016.

Rightmove has reported that June house sales were up by 4.6% compared to June last year, a result we would expect given the rise in mortgage lending.

Mortgage fees are down on BTL mortgages

Mortgages for Business has found that fixed fees levied by mortgage lenders on their buy-to-let business have hit record lows. They are down by 5% in the second quarter of 2017, falling from an average of £1,446 to £1,370. Only 11% of buy-to-let mortgages have no arrangement fee, while 48% have fees based upon a percentage of the total borrowed.

What you can learn from this week’s property news?

You must ignore the headlines

We don’t know how many times we must repeat this mantra – ignore the headlines in the press and media! Read beyond the headlines, and research the truth. Understand what figures are being used.

I saw a television advert recently for a well-known women’s shampoo.  It claimed that ‘more than 75% of women asked said they noticed the difference…” or something similar. In the small print on the screen, it turns out that the company has asked less than 30 women their opinion. Hardly a good sample.

House price figures from companies like Hometrack and Rightmove are no more than an indication of price direction because their sample size is equally limited. Always look beyond such figures, and you will discover the truth.

Property prices are unlikely to fall

The UK Property Transaction statistics are calculated on the whole of the market. They are government figures, taking into account every completed property transaction in the UK. IT is the most accurate assessment of where the property market stands.

The latest figures confirm absolutely what we have been witnessing: there is no housing price crisis in the UK. There is insufficient building to cater for demand. Any lull in property prices could be a fantastic opportunity to buy, and certainly not the trigger to push the panic button and sell.

Rental prices are likely to move higher

As property prices continue to rise faster than general inflation and wage increases, affordability issues will grow. More people will seek to rent rather than buy. There will be extra demand for rental properties. This demand is likely to translate into higher rental prices. Buy-to-let rental returns should rise.

Savvy investors are ignoring the doom merchants

The increase in mortgage lending shows that savvy investors understand that political uncertainty and sensationalist headlines are not what makes a market. It is supply and demand. And demand for homes is way higher than the supply of homes in the UK.

House prices are not crashing. They aren’t even losing momentum. They are rising steadily at around 5% per year. Property investors are beating inflation by quite some margin, and benefitting from low-interest rates, decreasing mortgage fees, and rising demand for rental property.

To stay abreast of all the property investment news that matters, contact one of our team today on +44 207 923 6100. Ask about our newsletter. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
July 24, 2017

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