Monthly Archives

January 2018

Why UK property will be a good bet in 2018

By | Residential Property | No Comments

2017 was a mixed bag for the UK residential market. Hamish Pound, Head of Investment, IP Global, shares his thoughts on why we shouldn’t give up on UK property just yet.

Much has been made about sluggishness at the upper end of the London market, and there have been reports that as many as a third of properties have seen their asking prices cut. However, the property market’s fundamentals still remain positive; data from the ONS revealed that house prices increased by 4.5% in the year to October, and the rate of residential transactions is 7.1% higher than a year ago according to HMRC. I firmly believe that these strong fundamentals mean that UK residential will shake off uncertainty and continue to be an excellent destination for investment – especially considering volatility in other asset classes.

While the media have rightly observed that the upper end of the London market cooled off slightly in 2017, it is important to remember that the UK property market is not a monolith. Northern cities such as Manchester, Liverpool, Leeds and Birmingham continued to perform extremely well over the year, offering investors fantastic yields and capital growth. We expect this performance to be sustained over coming years too. In Leeds, for example, we predict 29% capital growth over the next five years and yields as high as 6%.

Ongoing development in England’s regions could also be a coup for investors in the country’s property market. In our recent Global Real Estate Outlook we identified Birmingham as a global hotspot for property investment based on its burgeoning student population, growing local economy, and high returns on property investment. With a growing number of companies thinking about relocating their operations outside of London (one estimate puts the annual savings of doing so at £20,000 per employee), the long term outlook for sustained growth in the regions is extremely positive.

This isn’t to say that the London market won’t continue to attract investment in 2018. The city’s central positon in the global economy will continue to support a baseline of demand in both the rental and purchase markets, and ensure that international investment flows into the city. Furthermore, since the vote to leave the European Union in June 2016, the pound has depreciated against currencies like the Renminbi, Dollar and Euro, making investment in the city more attractive to international investors. Indeed, the outer London market is becoming more and more popular among investors who have been deterred by large Stamp Duty levies on prime central London property.

I also believe that we will not see the kind of ‘black swan’ event that many commentators believe will derail the residential market. Some anticipate that fallout from the ongoing Brexit negotiations will severely dampen the market – but this is now looking increasingly unlikely.  While there is a lot of political noise around the negotiations, the market brushed off the shock of the initial result without flinching. The reality is that any deal or lack thereof is unlikely to alter the market’s strong fundamentals, or lead to a seismic reduction in demand for accommodation.

Furthermore, a regulatory ‘black swan’ event is also extremely unlikely. Over the past few years there has been justifiable concern that policies such as the additional stamp duty charge and changes to landlords’ tax relief would have profound effects on the markets. While these have had some impact, UK residential has overcome these challenges, and it appears that the government is unlikely to take further action. Worries about the health of both the housing market and wider economy mean that the government will not risk causing instability by taking actions like clamping down on foreign buyers.  If anything, it is likely that policymakers will look to stimulate activity in the housing market rather than put the brakes on it.

While investing in the UK residential property market won’t necessarily be plain sailing in 2018, I believe that intelligent investors who take a measured approach to their portfolios will not be disappointed. The economic outlook might cloud, but short-term volatility will not alter the fundamental imbalance between supply and demand in the market.

Source: Property Report

Residential property sales in November in UK up over 7% year on year

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Residential property sales in the UK increased by 0.6% between October 2017 and November 2017, some 7.1% higher compared with the same month in 2016, the latest official figures show.

However, for November 2017 the number of non-adjusted residential transactions was about 0.4% lower compared with October 2017 but 6.1% higher than in November 2016, according to the data published by HMRC.

The data report points out that the long term movement in the number of residential property transactions reflects the general performance of the housing market over the past 12 months with the sharp fall in sales at the end of 2007 coinciding with the housing market slump and credit crunch.

Prior to this point, the number of transactions had risen constantly over a number of years to reach a peak of around 150,000 per month. From December 2008 to February 2014, there was a slow but steady upward trend in the seasonally adjusted count.

The seasonally adjusted transaction estimate shows a distinct peak at December 2009. This is associated with the end of the Stamp Duty Land Tax ‘holiday’, during which the lower tax threshold was temporarily raised to £175,000. The forestalling effects of this holiday coming to an end also show as higher than normal transactions in the previous few months as homebuyers brought forward their purchases. There is a corresponding drop in the early months of 2010.

There is another, smaller, peak and trough in March and April 2012 due to the ending of the SDLT first time buyers’ relief. This relief was in effect from 25 March 2010 to 24 March 2012 inclusive. Around 7,000 transactions per month benefitted from this relief, although this number doubled in its final month.

March 2016 recorded the highest number of sales in the last 10 years and the HMRC report says this peak is associated with the introduction of higher rates on additional properties in April 2016.

Comparison of the not-seasonally adjusted and seasonally adjusted data shows that activity in the residential housing market is strongest in the summer months with a clear low point around the end of the calendar year.

The seasonally adjusted estimate of the number of non-residential property transactions increased by 5.2% between October 2017 and November 2017, some 5% higher compared with the same month in 2016.

The non-residential property market has mirrored, to a large extent, the ups and downs of the residential market. The credit crunch effects from 2007 triggered a similar fall in transactions but not to quite the same extent as in the residential market.

Overall, the report says that the trend in non-residential property transactions has been that of a generally flat seasonal cycle between September 2010 and September 2013, but since then there has been a rising trend. Unlike the residential market, there have been no temporary tax reliefs or holidays in recent years to distort the underlying trend.

However, it also points out that the seasonal pattern of the non-residential series is much less pronounced than that of the residential market, although there tends to be a low point at the start of the calendar year, with a corresponding peak each March coinciding with the end of the financial year.

According to Stephen Wasserman, managing director of West One Loans, said that the figures show that the residential market is continuing to grow at a stable pace. ‘With last month’s Budget being significantly housing focussed, we will hopefully see the market continue on this trajectory in the next few months, as the outcome of the changes start to be seen,’ he said.

‘It has been a challenging year for the wider property sector, due in large part to the continual economic and political volatility but these figures are another positive indicator of the overall health of the market, and we are cautiously optimistic that this trend will continue in the New Year. The bridging sector in particular has seen a strong year with gross annual lending reaching £4.7 billion, eclipsing the pre-Brexit high,’ he added.

Source: Property Wire

Property market shrugs off Brexit concerns with Midlands and the North Propping Up London

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CONSIDERING that 2017 wasn’t exactly the easiest backdrop for the UK property market, news out this morning that overall, the number of residential properties sold last year was just half a percent lower than 2016 will be welcomed by many.

Latest data released this morning from HMRC reveals the number of residential property transactions both for December and the whole of 2017, and is seen as significant by industry analysts as it provides one of the few truly independent bellwethers of the market.

The report shows that in December there were 99,100 residential property transactions, a drop of 3.3% on November, the overall tally of properties sold in 2017 standing at 1,223,400.

For context, in 2016 there were 1,230,580 homes sold, meaning that the year on year difference is just 0.58%.  Not bad at all, considering some of the headwinds faced over the previous twelve months.

But what’s driving such a healthy result, despite reports of London and the South East seeing significant price reductions and lower levels of activity?

It would appear that the dominance in recent months of regions such as the Midlands, North West and South West together with East Anglia, have mitigated the ‘London drag’ effect which has been observed of late, as the demand for properties in London has dropped to the lowest levels seen for many years.

Jeremy Leaf, north London estate agent and a former RICS residential chairman explains, “Although the transaction numbers are broadly similar between 2016 and 2017, what HMRC the figures today hide are the regional variations between London and the South East compared with other areas of the country.”

Jeremy continues, “Prices in the Capital and surrounding areas have softened of late in response to affordability and demand, whereas outside of the London property is seen as better value.

“Places which are just as attractive to live, albeit in other ways, are now appealing to buyers who would previously only have considered London and its close environs.

“We’re now seeing buyers who are deciding that they won’t put up with the lifestyle compromises required to purchase and live in London and who would rather take advantage of what’s available elsewhere, and with improving transport links this is now become more prevalent over the last twelve months than we’ve previously seen.”

Brian Murphy, Head of Lending for Mortgage Advice Bureau also comments, “It’s reasonable to suggest that, now the ‘scores are on the doors’ for last year, we can see that the UK property market has held steady against the prevailing factors we’ve seen in 2017.

“Whilst one would expect the level of transactions for December to be slightly lower than the preceding months, a 3.3% drop is well within seasonal expectations and hardly suggests that the housing market dropped off a cliff last month.”

Brian adds, “Taking all of this into account, for the numbers for 2017 to be so close to the previous year does indeed suggest that we’re going into 2018 with the market in solid shape, which may be assisted yet further by the introduction of the SDLT scheme for first time buyers along with newly released competitive deals from mortgage lenders which have seen some rates released in the last couple of weeks lower than they were before the interest rate rise in November.”

Although anecdotal reports point to a slower start than usual to 2018, overall it would appear that in many areas, the housing market remains robust.

Lenders such as the Nationwide and Halifax released their annual forecasts recently which suggested that average house price growth is likely to reach around 2.5% over the next 12 months and transaction numbers for this year are potentially going to plateau at a similar level to 2017.

However, given that the current overall economic view is somewhat hawkish, from the property industry’s perspective at least, ‘more of the same’ in terms of a steady level of growth and transactions would be a result many would perceive as positive.

Source: Express

Six factors influencing the UK property market in 2018

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It could be a better year in Britain’s dysfunctional housing market for first-time buyers and tenants

 

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