The good news mounts up for property investors in the UK
In the UK, property investors continue to enjoy the benefits of rising rents and property prices, new data shows. Despite the uncertainty surrounding Brexit, the rate of house price growth is gathering pace. And while the rate of rental price growth has slowed on a national basis, investors in many areas have increased rents by between 2% and 4%. In this article, we look at these numbers and ask whether house price rises are sustainable in the UK today and if rents are likely to continue to rise.
Rents are rising almost everywhere
Rental price data from HomeLet shows that average rents across the UK rose by 0.9% in the year to October 2017. However, this number is skewed downwards by the only region out of 12 that witnessed a fall in rental prices – the South East.
In particular, the slowdown in the rate of rental price growth in London – where rents rose by only 0.6% over the previous 12 months – pulled the national figure lower. Excluding London, rental prices rose by an average of 1.5% across the nation.
The average monthly rent in the UK is now £909.
Where are buy-to-let landlords increasing rents the most?
Taking a closer look at the numbers shows just how some property investors are benefitting from the rise in demand for quality rental property in the private sector:
- Rents are up by 3.6% in the East Midlands
- Rents are 2.9% higher in the West Midlands
- Rentals prices are up by between 2% and 2.5% over the last 12 months in the North West, Yorkshire and Humberside, and Scotland
- In the North East, rents have increased by 1.9%
Investors in property to the north are currently faring better for rentals than their counterparts in the south when it comes to the rent they can charge.
House prices are now rising faster than the beginning of 2017
In its latest assessment of the property investment market in the UK, the Halifax has posted data that says house prices are now 4.5% higher than they were a year ago (October 2016 to October 2017). It is the fastest 12-month growth rate since February 2017 and pushes the average house price in the UK to £225,826.
The annual rate of growth has now increased for three months running.
Furthermore, when comparing the quarterly rate of growth, the average house price in the UK is 2.3% higher in the quarter to October 2017 than it was in the May-to-July quarter. It is the fastest rate of quarterly growth since January.
Will property prices continue to rise in the UK?
There’s a big imbalance between supply and demand in the UK. We don’t anticipate this gap closing by much, if at all. Some analysts have warned that the latest base rate rise (from 0.25%) to 0.5% could dampen demand. We don’t think it’s enough to do so. The Halifax report mirrors our thinking. It says:
“The fact that the supply of new homes and existing properties available for sale remains low, combined with historically low mortgage rates and a high employment rate, continues to support house prices and is likely to do so over the coming months. Increasing pressure on household finances and continuing affordability concerns are some of the factors likely to dampen buyer demand. That said, we do not anticipate the base rate rise will be a barrier to buying a house.”
Housing activity remains robust
If you read some news reports, you’d be forgiven for thinking that the housing market is at a standstill. The Halifax report also sheds some light on the activity in the UK housing market. Here are the facts:
- More than 100,000 homes have been sold every month throughout 2017
- In the three months to September 2017, there were 6% more homes sold than in the corresponding period in 2016
- While mortgage approvals in September edged down, in the three months to September, they were 3% higher than during the same period in 2016
- The shortage of homes for sale is limiting activity
- 50% of people surveyed believe that house prices will rise over the next 12 months, while 20% think they will fall.
- Almost two-thirds of people say the biggest barrier to them buying a home is the ability to raise a deposit.
Good news for investors?
This raft of data shows that property investment potential is very much alive and kicking in the UK. If you crunch these numbers, you’ll find that:
- The average rental yield is 4.9%
- The average increase in property value is 4.5%
That’s a gross return of 9.4% over the last year. And if you have leveraged your investment, your real yield on capital invested will be even higher.
Even better, with 61% of people having difficulty raising a deposit to buy a home, over the medium to long-term the demand for rental property is likely to increase. With inflation rising and the ban on tenant fees approaching, we could see rent rises across the country edge towards those currently benefitting from property in the North.
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