In the past few years the UK has become a proven haven for property investors keen to take advantage of continuing improvements in economic stability, the booming buy to let market with fantastic investment opportunities and the British Pound maintaining itself as a safe and stable currency, according to Citigroup.
With average house prices in London now increasing to a staggering £500,000, the city’s capital still attracts a wealth of overseas investment and still has margin for respectable returns. This has resulted in homeowners and more conservative investors seeking alternative areas within the UK to buy property at a lower entry level.
Hometrack’s 20 UK Cities House Price Index has recorded a further jump in the rate of house price growth to 11.4%, up from 10.2% the previous month and 8.9% twelve months ago. This represents the highest rate of growth for 15 months as demand increases in the face of constrained supply not least from property investors who accounted for 1 in 5 of all buyers in 2015.
“With cities the focus of economic and demographic change it is no surprise that city level house price inflation continues to run ahead of UK house price growth which has also risen to 7.9%. The performance of house prices across these cities reflects the scarcity of supply and underlying demand for homes,” says Richard Donnell, Insight Director at Hometrack. “Thirteen of the twenty cities have recorded continued growth in house prices for over 6 years with the remaining seven registering recovery in house prices between 2 and 4 years.”
Cambridge has seen the highest annual rate of growth at 14.4% followed by London 13.8% and Bristol 12.8%. Prices may be rising but overall sales volumes across Cambridge and London look on track to be lower over 2016 as scarcity of homes for sale and affordability pressures limit overall volumes.
According to The Crown Estate, yields in central London and some other sectors are now at or approaching record levels, admitting that the Bull Run may still have some legs. In particular, geopolitical instability, combined with areas of weakness in the global economy especially China and the BRIC countries, are likely see interest rates remain lower for longer and continue to encourage the flow of international capital into UK real estate.
Impact of rental demand and buy-to-let
A quarter of homes in the 20 cities covered by the index is private rented property and strong investor demand will explain some of the additional growth in city level house prices relative to the UK rate of growth.
Looking across the 20 cities the impetus for growth continues to come from regional cities where prices are rising off a low base as household confidence improves and homeowners utilise record low mortgage rates to access the market. Glasgow and Liverpool have recorded a significant increase in house price growth over the last 12 months in cities where the recovery has been running for just 2-3 years.
Where recovery has been sustained over 6 to 7 years, growth is still relatively strong with cities such as Leicester in the burgeoning East Midlands 6.9% and Birmingham in the West Midlands 6.1% respectively.
Leicester is the tenth largest city in the UK, with a population of around 330,000 and at the start of 2015, the HomeLet Rental Index placed the city top of the UK rental market, citing a growth in annual yields of 45%, making Leicester by far the biggest rental growth spot in the UK.
“The East Midlands and Leicester in particular is becoming a hugely popular area for UK investment and provides a great affordable alternative to London and it’s surrounding areas. Our St Georges development in Leicester offers a fantastic buy to let UK investment with guaranteed rental returns of 7% per annum,” says Joe McCormack, partner, Crowngate International. “The choice of modern residential Studios, 1 & 2 bedroom apartments come completed and are ready to generate an immediate income for clients looking for secure, low risk wealth creation and impressive rental yields.”
Property in Leicester offers exceptional choice and value for money and it is not difficult to find the ideal property to buy, from executive flats to family homes with gardens. There has been a 32% growth in the sales of housing in 2014/15 in Leicester due to large demand in the area and it is predicted to be a top ten UK property hotspot in the next 10 years, according to online estate agents HouseSimple.
“Whilst a correction in the capital markets may be moving closer, it is hard to see a dramatic downturn in property values. Interest rates are likely to peak at no more than 2-3% and unlike some previous cycles, the sector hasn’t overdeveloped nor is it overburdened with debt,” says Paul Clark, Chief Investment Officer, The Crown Estate. “Besides, there is far more equity out there than there used to be and so the global saving glut in itself will support pricing.”
In any case, bull runs and corrections are normal and healthy features of a cyclical market. Investors should be prepared to embrace these realities, see them as opportunities, and structure their portfolios and activities accordingly.
ALFA Investors have a range of investment properties in the UK including London, Leicester and Birmingham and selected high-growth regional cities throughout the country.
Alfa Investors: Squarefoot Magazine 15 February 2016