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Savills reveals the property investment hotspots

Much of the recent commentary around house prices in the UK has been focused on short and medium term trends, with a consensus emerging that, at least until the end of 2018, we will see sustained, but comparatively slow, growth. There has been little discussion of the longer term direction of the market. Savills, the London-based estate agency, has, however, published research revealing its predictions for housing for the next five years and it makes intriguing and essential reading, whether you are a householder or a potential property investor. In this Nethouseprices feature, we evaluate the detail of the Savills study.

Headline points

The headline-grabbing aspects of the publication were as follows:

1. The estate agent is dialing back its earlier forecast of 17 per cent house price growth by the end of 2022.
2. It anticipates compound growth of 14.2 per cent in the next five years, with the average cost of a residential property rising £26,000 from its current £212,000 to £242,000.
3. The London housing sector will remain weak, although the price of a house or apartment in the capital will rise £33,000 from £472,000 to some £505,000.
4. The Bank of England base rate will rise, says Savills, to 2.25 per cent by 2022 and mortgage rates will reach around 4 per cent.
5. The region of the UK tipped for the most impressive house price movement is the North West of England, with Savills pencilling in overall growth of 18.1 per cent in the area during the coming five years.

The detail

As interesting as these figures are for housing market observers, they don't really offer a comprehensive picture of the trajectory of house prices in the UK. For this insight, we need to delve deeper into the detail of the Savills report. The following is a summary of projected regional patterns until the end of 2022:

North West of England

- Average house price now = £156,000.
- Average expected price in 2022 = £184,000.
- Gain = £28,000.
- Compound growth = 18.1 per cent.

North East of England

- Average house price now = £127,000.
- Average expected price in 2022 = £149,000.
- Gain = £22,000.
- Compound growth = 17.6 per cent.

Yorkshire and the Humber

- Average house price now = £151,000.
- Average expected price in 2022 = £178,000.
- Gain = £27,000.
- Compound growth = 17.6 per cent.

Scotland

- Average house price now = £146,000.
- Average expected price in 2022 = £171,000.
- Gain = £25,000.
- Compound growth = 17.0 per cent.

Wales

- Average house price now = £150,000.
- Average expected price in 2022 = £174,000.
- Gain = £24,000.
- Compound growth = 15.9 per cent.

East Midlands

- Average house price now = £178,000.
- Average expected price in 2022 = £204,000.
- Gain = £26,000.
- Compound growth = 14.8 per cent.

West Midlands

- Average house price now = £183,000.
- Average expected price in 2022 = £210,000.
- Gain = £27,000.
- Compound growth = 14.8 per cent.

South West of England

- Average house price now = £241,000.
- Average expected price in 2022 = £275,000.
- Gain = £34,000.
- Compound growth = 14.2 per cent.

East of England

- Average house price now = £288,000.
- Average expected price in 2022 = £321,000.
- Gain = £33,000.
- Compound growth = 11.5 per cent.

South East of England

- Average house price now = £322,000.
- Average expected price in 2022 = £358,000.
- Gain = £37,000.
- Compound growth = 11.5 per cent.

London

- Average house price now = £472,000.
- Average expected price in 2022 = £505,000.
- Gain : £33,000.
- Compound growth = 7.1 per cent.

Observations

There are several issues which are likely to affect house prices during the next few years:

Brexit

Yes, Brexit rears its head again in these pages. It seems that the lack of certainty about the shape of Britain's new relationship with the EU is key to the decision to cut back growth predictions. As Savills points out, however, this may change again if we start seeing more clarity.

Economic challenges

In a way, this is an extension of the Brexit point. During the transition to a new settlement with Europe, the wider British economy will be more than usually vulnerable.

Interest rates

As mentioned above, Savills believes that the Bank of England will continue to hike the base rate during the coming years and that lenders will follow suit by raising their lending rates to as much as 4 per cent. By historical standards, borrowing will remain remarkably inexpensive but, however carefully the increases in the base rate are managed, people will probably start to feel the pinch.

Mortgage regulation

As readers will recall from previous Nethouseprices columns, significant changes were made to the UK's mortgage lending regulations following a major review of the market in 2014. Ensuring that borrowers can realistically afford their mortgage repayments is central to the new framework. While interest rates have been pegged so low, the tougher lending criteria haven't been especially noticeable. As rates rise, though, they might have a greater impact.

London

Property prices in London have already been weighed down by each of the above issues, but there are two idiosyncrasies of housing in the capital which are exaggerating its relative decline. Firstly, the new tax arrangements for investment properties have been felt more acutely in London, causing something of an exodus from the market. Secondly, house prices are approaching an affordability threshold in London, so there is little space for further increases.

Regional growth

The North West of England has been outperforming many of its counterparts for much of the past year. The reasons for such buoyancy in the region are numerous and complex, but the main engine for the stellar growth seems to be the success of the government's Northern Powerhouse strategy. Like the North East, Midlands, Scotland and Wales, the North West also boasts much more affordable housing than can be found further south. This makes it an attractive destination for investors, who can get great value for their real estate money. Crucially, the market remains accessible to first time buyers and second steppers. In other words, there is ample room for further growth.

Here is a link to the Savills research:

http://www.savills.co.uk/_news/article/72418/224244-0/11/2017/uncertainty-and-lending-constraints-to-slow-5-year-house-price-growth-and-limit-house-buying-activity.-rents-to-keep-pace-with-wages--but-landlords-feel-the-squeeze

We hope you found this feature interesting and that you will visit the team here at Nethouseprices again soon.

Source: Nethouseprices.com 06.11.17

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