Are Recent Developments in the UK Good for Renters and Investors?
The UK property market is complex and made more complicated by the UK’s situation with Brexit and Global trade changes. Even the best experts are challenged to forecast the market in 2020, but let’s take a look at some of the factors and trends.
Remainers and Brexiteers both are a little nervous about which way the UK housing market might go. For renters, it seems there are factors which could see many renters become home owners, as rent prices might begin to recover? For landlords, vacancy growth and lower rents might create a push to more efficient ways of managing property portfolios.
Overall in UK cities, home prices were growing by 1.8% although June’s numbers appear to be much lower. If more renters become buyers, it could raise home prices beyond estimates (some estimate up around 5%). This might push rental prices up.
Which Direction Will UK Home Prices Go?
According hometrack.com, home prices overall in the UK are climbing 1.8%, and the rate of growth is highest in the more affordable cities such as Belfast and Liverpool. Price inflation appears to be abating. However with the changes in political leadership and policy forecasts, this may change.
Residential home prices have been falling in London and Cambridge and price growth is weakening across southern England. It’s estimated that the income needed to buy a home now is £54,400 which is up £4500 in the last 3 years. The trend for first time buyers has been awful (shown in the purple dots in this chart below).
UK Home Price Index to May
“Most of the slide in London prices has been felt by the owners of expensive properties in the capital, with multi-million-pound homes experiencing the worst falls,” says The Guardian. Prices are “likely to continue sliding as Brexit worries hit the capital’s housing market hardest”, adds the paper. — from a report in the https://www.theweek.co.uk/london-house-prices
In London, prices have been on the decline for a number of reasons — buyers were put off by tax changes, high prices and poor value for money, combined with uncertainty around Brexit has seen the number of sales in the capital fall by a quarter over the past five years — from a report in the theweek.co.uk.
Boris Johnson: Rolling Back Property Prices
Boris Johnson has promised to roll back house prices. If the stamp duty is scrapped for homes under 500,000 it could bring a whole new pool of investment buyers and home buyers into the residential market. 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.
The weaker British pound and falling prices in the UK are drawing overseas investors. For UK buyers trying to decide on the buy vs let option, the answer is still to rent. Some may be waiting for an expected cut to the stamp duty which dampened UK real estate market forecasts. Purchases by Brits have dropped 16% year over year.
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 Renters Happy with their Situation
The English Housing Survey, published by the Ministry of Housing, Communities and Local Government (MHCLG) shows 4.5 million households live in the private rented sector in England and anoterh (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 neighbourhood (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 amont 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 lease one categroy 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 Johson, along with Brexit, may produce some healthy outcomes such as new investment housing construction and new buyers in the market.
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