House prices have risen by 8.4% in the year to June and 1.2% on the quarter according to Halifax house price data. Steve Povall of Chester based Residential Estates gives his view on the outlook for UK property in the next 12 months.
The last 12 months have seen solid growth in UK house prices with some strong regional variations. If we take Chester as an example of a typical housing market in the North West, property price growth has been close to 2.5% with nearby Wrexham seeing prices rise by more than 5%.
The main strength in the North West region has been its rental market where demand for property is particularly high. One of the key drivers is close proximity to large multinationals on local business parks such as Bank of America and employment opportunities in a variety of other industries.
According to our in-house research, an average property in Chester will take less than three weeks to find a tenant and it is this kind of demand that helps landlords generate long term profits from property rather than looking purely at property price movements.
Rental yields have always been the biggest reason to invest in property with any growth in the value of property the icing on the cake. Most investors buy and hold property for five years or more and with the average property market cycle taking four years, what’s happening with property prices at the time of purchase is less of a concern.
The long term fundamentals of the UK property market are strong with demand for housing far outstripping supply. That said, to get the best out of investment in UK property as in any country requires careful analysis at a local level, which is important to achieve the best returns.
On a national level there is no clear evidence as yet that property prices will fall as they did in 2008. One of the biggest causes of the fall in house prices back then was a reluctance on the part of the high street banks to lend. This prevented many people from buying property which in turn forced down prices as demand fell.
What we are seeing now is the opposite. Banks are actually competing with each other again for customers. Barclays are even offering zero deposit mortgages which we haven’t seen for nearly a decade.
With interest rates at historically low levels, there is plenty of incentive at the moment for people to get themselves on the housing ladder or invest in property to take advantage of these low rates.