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The UK Housing Market

UK Property Market Forecast 2020

The pandemic is creating some odd effects on house prices in the UK, just as it is in Australia and America.

Amidst all the pessimism and events of the summer of 2020, we still have good news for UK homeowners looking to sell in the next 5 years. Prices are expected to rise.

Housing trends and rental property trends in the UK mirror what is happening in other countries. Consider demand when the pandemic ends in 2021, and foreign buyers being buying properties again. We’ll discuss some of the new trends below.

Rightmove Reports

Rightmove just reported a new national record for average price of property up for sale with a 1.1% (+£3,534) monthly rise. They state that the pace of UK home buying in October so far is up 58% vs last October of 2019.

And average selling time is 50 days shorter. Home prices are 5.5% (+£16,818) higher than 12 months ago which is the biggest rate of increase in 4 years.  Rightmove believes prices will peak in December at 7% growth.

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 suburbs and northern England and Scotland
  5. low mortgage rates
  6. 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 2020 UK real market forecast, we predicted house prices would rise and demand for homes would pick up. It’s actually done much better.

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 downpayment 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. The 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

 

Most Recent Rent Price Chart courtesy of Statista.

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

Southeast London saw the highest grow in rents last month.

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 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 lat 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 |  Covid Foggers | Covid DisinfectionCovid 19 Cleaning TipsProperty Management Trends  | Property Management Metrics | California Housing Market | Property Maintenance Tips |  Apartment Rental Prices | Best Cities for Rental Property | Cloud Based Property Software

 

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