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The UK Housing Market

UK Property Market Update

After moderating in February and March, UK home prices rose by 2.1% in April 2021 with the average home price reaching £327,797. The rise this spring is due a shortage of homes for sale, in fact, it’s the lowest UK property market supply ever.

The rapid price rise is clearly seen in this chart, and ask asking prices are up sharply, we might expect higher home prices in May.

This is only the second time over the past five years that prices have increased by over 2% in a month, so it’s a big jump, especially bearing in mind that the lockdown restrictions are still limiting the population’s movements and activities — said Tim Bannister, Rightmove’s Director of Property Data.

This is the biggest lack of stock we’ve seen on the market for at least the past 20 years. Demand is huge, created by a perfect storm of low interest rates, the stamp duty holiday and changes in people’s working patterns. The dreary five day a week commute for many is now over, and this has led to areas outside of London becoming some of the most in demand” — said Richard Freshwater, Director at Cheffins.

Screenshot courtesy of Rightmove.co.uk

Screenshot courtesy of Rightmove.co.uk

Screenshot courtesy of Rightmove.co.uk

UK Regional Property Market Report

Rightmove’s forecast for this year was for a 4% national average price growth in 2021 and an easing housing market. They attribute that to buyers seeing housing as a top priority. Of course, with 2% growth in April alone, their estimate might be well under reality.

The extension of the stamp duty holiday is a huge factor as is additional support for the labor market and the reopening of the economy amidst the work from home revolution.

And UK homebuyers have plenty of savings to fuel bidding wars.

  • Annual house price growth rebounded to 7.1% in April (highest rise in 17 years), from 5.7% in March
  • Home prices rose in 2020 up by 6.6% (up by £19,920 to £319,945 median) despite a small monthly fall of 0.6% (-£2,080)
  • home prices are up 8.2% from last year
  • Homelet reports the average rent in the UK is now £996, up by 0.4% from last month, and up 2.9% on last year
  • 11 of the 12 regions showed an increase in annual variance, with the largest being the South West at 8.6%
  • Average rents in London are down YOY, showing a 5.3% fall between April 2020 and April 2021; this is the 12th decrease in annual variance in subsequent months.
  • Greater London suffered the largest rent price drops (-1.4% vs last month) and (4.4% vs last year)

Okay, the picture is pretty clear. There’s plenty of demand for both asking prices and sold price rises along with rental price increases.

10 City home price index UK. Screenshot courtesy of Hometrack.co.uk.

Rightmove and Homelet Reports on 2021

“2021 has a lot of variables, and so is not an easy one to call, but with Rightmove’s unique leading indicators of buyer and seller behaviour we are confident that the housing market will continue to outperform general expectations next year as it did this. Our 2021 forecast of a 4% price rise is more conservative than the unsustainable 6.6% national average seen this year. — RightMove’s Tim Bannister

  • Rightmove’s 2021 forecasts a 4% national average price growth in 2021. They attribute that to buyers seeing housing as a top priority.
  • Q1 2021 will be as the end of the stamp duty approaches in spring. There is a huge volume of properties
  • They predict that price rises will be slower in 2021
  • Home prices rose in 2020 up by 6.6% (up by £19,920 to £319,945 median) despite a small monthly fall of 0.6% (-£2,080).
  • Homelet says the average rent in the UK is now £974, up 2.9% vs November 2019 (£947)
  • Wales had the highest monthly growth (+2.4%) and the southwest had the largest yearly growth (+8.6%)
  • Greater London suffered the larget rent price drops (-1.4% vs last month) and (4.4% vs last year)

What’s Causing UK Home Price Rises?

The cause of the price increases?  Let’s list them all:

  1. strong buyer demand from equity-rich buyers so affordability and job loss not an issue
  2. home more important in the continuing pandemic era
  3. inventory growing slightly
  4. migration out of London to larger homes in suburbs and northern England and Scotland
  5. low mortgage rates
  6. continued stamp duty holiday
  7. pent up demand from the pandemic shutdown
  8. speculation as economy improves and foreign buyers return

In our previous update on the UK real market forecast, we predicted house prices would rise and demand for homes would pick up. It’s actually done much better. And UK rent prices are on the rise too.

Higher Prices and Tightening Supply

If you’re hoping to buy a home in near London, Manchester, Liverpool, Birmingham, Bristol, Sheffield, Cambridge, Leeds, Glasgow, Edinborough, Leicester or Swansea you’ll find it much more competitive. Homes are selling faster, prices are up, and supply is weakening.

UK home prices are expected to be 2% to 3% higher than this time last year, and price growth was 2.6% for August (hometrack), to an average home price of £224,123. Demand for housing is 39% higher than at this stage last year.

Some housing experts are sounding a negative 2021 forecast with price drops exceeding 14%.  The key to that pessimistic outlook is the withdrawal of ongoing financial support for home buyers in 2021 including not servicing LTV loans of >90%.

Savill’s 5 Year Home Price Forecast – 2020 to 2024

As you can see in this 5-year forecast chart, Savills UK predicts strong growth in property prices in the second-hand market, a far cry from other more pessimistic outlooks. This may reflect a migration out of London.

Screenshot courtesy of Savills.co.uk

However, Savill’s notes that UK average incomes will not keep pace with home price rises.

Screenshot courtesy of Savills.co.uk

But will home sellers give up their properties for anything less than they’re receiving now? Savill’s thinks not.  In most other countries, sellers have not relinquished their property for a cheap price.

With the slowdown in new home construction, and demographic migration changes out of London, and work at home provisions, demand housing may not slow.  A falling price for homes of 14% seems a little overzealous.

Major Builder Barratt completed 5,252 fewer homes than the previous year (down 29%), as building sites were forced to close for several weeks during the pandemic.

Which Direction Will UK Home Prices Go?

Previously, the rate of home price growth was highest in the more affordable cities such as Belfast and Liverpool.

Average House PriceINDEX Q1 1993=100Seasonally Adjusted IndexMonthly % Change (SA)Year % Change
Aug 2020£224,123447.1445.52.0%3.7%
Jul 2020£220,936440.7436.91.8%1.5%
Jun 2020£216,403431.7429.4-1.6%-0.1%
May 2020£218,902436.7436.4-1.6%1.8%
Apr 2020£222,915444.7443.61.1%3.7%
Mar 2020£219,583438.0438.90.8%3.0%
Feb 2020£216,092431.1435.40.3%2.3%
Jan 2020£215,897430.7433.90.5%1.9%
Dec 2019£215,282429.5431.80.2%1.4%
Nov 2019£215,734430.4431.10.5%0.8%
Oct 2019£215,368429.6429.10.2%0.4%
Sep 2019£215,352429.6428.2-0.3%0.2%
Aug 2019£216,096431.1429.5-0.2%0.6%
Jul 2019£217,663434.2430.20.2%0.3%
Jun 2019£216,515431.9429.20.2%0.5%
May 2019£214,946428.8428.20.1%0.6%
Apr 2019£214,920428.7427.80.4%0.9%
Mar 2019£213,102425.1426.10.1%0.7%
Feb 2019£211,304421.5425.9-0.1%0.4%

Above data courtesy of Hometrack.co.uk.

UK Home Prices by City. Graphic courtesy of Hometrack.co.uk.

Residential home prices have been falling in London and Cambridge and price growth is weakening across southern England. It’s estimated during last year that income needed to buy a home now is £54,400 which is up £4500 in the last 3 years. The income and down payment trend for first-time buyers was not good (shown in the purple dots in this chart below).

Graphic courtesy of hometrack.com/uk/insight/uk-cities-house-price-index/may-2019-cities-index/

Boris Johnson: Rolling Back Property Prices

Boris Johnson promised to roll back house prices. If stamp duty scrapping for homes under 500,000 brought some relief. First time buyers would enjoy this, perhaps allowing them to give their notice to their rental landlords.

As the UK’s political and business focus returns to domestic from International, the housing and rental property markets may start to look good for investors.

Brexit Not Hurting Multifamily

Despite the fear hype surrounding Brexit, JLL’s Residential UK report shows Brexit isn’t hurting multifamily investment. Their data shows investment was up 150% to 6 billion Euros during 2018.

Loans to Buy to Let had fallen 46% since the Brexit referendum and they report that construction of new homes is still far behind its target of 300,000 new homes a year by 2020. They believe house prices in central London will grow 15.3% over the next 5 years.

This chart below from JLL, shows investment is strong in Berlin and Denmark, and not far behind, London UK. Investment in European multifamily properties rose 40% to 56 billion euros in 2018.

The UK is beginning to experience a deluge of properties on the market yet there hasn’t been the same corresponding rise in buyers or prices. That would have had us forecast that home prices and rental prices might be on the decline in London and other major British cities.

PWC UK Economic Report Forecast

In the recent PWC UK economic report, the company forecasts business investment to stay low, although national GDP levels will remain similar to 2019.

In their UK housing report, PWC cites mounting affordability issues for workers in London (i.e., young workers). They believe house prices will rise 1% across the nation. — from pwc.co.uk/economic-services/ukeo/ukeo-housing-market-july-2019.pdf report.

” Locked out of purchasing a home, many young people – commonly referred to as “generation rent” – have turned to renting. The proportion of 16-24 year-olds renting privately has risen from 51% in 1998/99 to 73% in 2017/18 and from 20% to 46% for 25-34 year-olds. ” — From the Pwc housing report.

Housing shortages, high deposit requirements, stagnant wages, would make renting a continuous fact for most young UK residents. Is change in the air?

UK Rent Prices

Rent prices have been sliding for many years, keeping UK renters happy

UK house rental prices. Screenshot courtesy of ons.gov.uk.

UK Rent Prices (up to date from homelet.co.uk)

Homelet’s April 2021 the rent report shows that the average rental price for a new tenancy in the UK was £996 per month, a rise of 2.9% from last year. Their rent report further shows:

  • average UK rent grew .4% to reach £996 per month
  • ex-London, the average rent in the UK is now £853, a rise of 0.7% on last month and 6.2% on last year.
  • 11 of the 12 regions showed an increase in annual variance, with the largest being the South West at 8.6%.
  • The South West had the biggest increase of 8.6% between April 2021 and April 2021.
  • Average rents in London are down YOY, showing a 5.3% fall between April 2020 and April 2021
  • average rental value in London (£1,580) is still 85.2% higher than the rest of the UK

Screenshot courtesy of Homelet.co.uk

UK Renter Statistics

The English Housing Survey, published by the Ministry of Housing, Communities and Local Government (MHCLG) revealed 4.5 million households live in the private rented sector in England and another (4.0 million) live in the social rented sector. They comprise more than 1/3rd of the UK population. 84% state they are satisfied with their current accommodation. They believe tenants move because they must move.

According to the English Housing Survey, private renters spent a third (33%) of their household income on their rent. That compares 28% for social renters, and 17% for mortgagors. Rents percentage of household income was 6% higher for private renters in London (42%) than for the rest of England (30%).

Most private renters (71%) said they found it easy or very easy to pay their rent. They are paying about a third of their income on rent (according to the report).

Tenants Aren’t on the Move

The report indicated that the main reasons for moving in the last 3 years were job-related (18%)and moving to a better neighborhood (16%) and moving for a larger residence (13%). 12% moved due to the landlord’s request.

63% of private renting tenants have no savings, and a third report having a small amount of savings. Given housing prices, it is a reach to say British renters are ready to buy a home. Although 58% says they would like to buy. 77% of younger Brits believe they will buy at some point.

Rental Housing Quality

There is a big question mark regarding the livability and safety of the private rental stock. 15% of rental homes were rated as non-decent, and 14% had at least one category 1 safety hazard. Asking rents in London are at a new record high of £817 per month.

For investors and renters, the election of Boris Johnson, along with Brexit, may produce some healthy outcomes such as new investment housing construction and new buyers in the market.

Please do Share this report on Facebook with your UK renter friends, and anyone interested in housing investment

See also: Property Management Software | Property Market UKBerlin Property Market | Buy Property in BerlinAustralia Housing Market | Sydney Australia Property Market  Housing Market and Property Management |  How to Increase Rental Returns |  Property Management Trends  | Property Management Metrics | California Housing Market | Property Maintenance Tips |  Apartment Rental Prices | Best Cities for Rental Property | Cloud-Based Property Software |  Property Software Reviews |  US Housing Market |

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