UK Property Market Forecast
Amidst all the pessimism and events of the the last 3 years, we still have good news for UK homeowners looking to sell in the next 5 years. Prices are expected to rise and rent prices are expected to grow as well.
Rightmove and Homelet Reports
“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:
- strong buyer demand from equity-rich buyers so affordability and job loss not an issue
- home more important in the continuing pandemic era
- inventory growing slightly
- migration out of London to suburbs and northern England and Scotland
- low mortgage rates
- stamp duty holiday
- pent up demand from the pandemic shutdown
- 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.
However, Savill’s notes that UK average incomes will not keep pace with home price rises.
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 Price||INDEX Q1 1993=100||Seasonally Adjusted Index||Monthly % Change (SA)||Year % Change|
Above data 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).
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
UK Rent Prices (up to date from homelet.co.uk)
Homelet’s most recent report for October of 2020, shows rents dropped 1.3%. The average rent in the UK is now £974, down £13 from September, but up 2.2% on last year. Outside of London, the average rent in the UK is now £821, down 0.8% from September, but is up 4.2% over last October.
The South West had a 6.2% growth in rent prices between October 2019 and October 2020. See more on the UK forecast.
Southeast London saw the highest growth in rents last month.
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
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