Saturday, May 15, 2021
Real Estate

Look North For Investment Properties As Savills Forecasts 24% Price Rise

Investment Properties

Anyone considering investment properties will be extremely interested in a recent research report published by Savills which pinpoints the more northerly regions of the UK as expected to show the strongest price growth over the next five years. Savills believes that over the period until 2024 average residential property prices across the UK will rise by a total 15.3%. However, the international property consultants are convinced there will be significant regional variations that mean significant nuances within that national average.

The north-south divide has become a fixture of the UK’s property market, with price rises over the past 2-3 decades especially pronounced in London and the South East. But the result of that is that Savills believes that property prices in London and the South East are now close to their affordability ceiling. Subsequently, Savills predicts that average London prices will gain just 4% over the next half decade compared to where they are now. So less than 1% a year.

With rental returns as a ratio to selling prices already stretched in London and the South, property investors have recently relied on a combination of lower price volatility and traditionally stronger capital gains to justify investment properties in the region. If Savills’ forecast proves to be accurate, at least the latter will no longer be an argument.

On the plus side, years of slower growth look to have left the more northerly regions with far more room to continue to grow. Compared to the Savills’ forecast for 4% price growth over five years for properties in London, the company predicts a full 24% of gains for the North West of the country over the same period. Prices in Scotland, Wales and other regions north of the Midlands are also predicted to show gains of 18% or higher over the five years ahead.

Savills head of research Lucian Cook commented:

“We anticipate a continuation of trends seen historically, where London and the southeast underperform markets in the Midlands and north. This appears to have begun in 2016, coinciding with the referendum, when London hit up against the limits of affordability”.

“Markets further from the capital, such as Leeds, Liverpool, and Sheffield, were much slower to recover post financial crisis and have much greater capacity for house price growth relative to incomes, even as interest rates rise.”

The forecast, if it proves accurate, would continue the recent trend of price increases in London and the south slowing, while those further north have increased. And even if property prices in and around the capital are always likely to stay ahead of those further north, there is still a big gap that Savills believe will start to close. The average house price in northwest England is currently £210,000 compared to £480,000 in London – significantly more than double.

The improving economies of major northern cities is one big factor driving the change. Charlie Kannreuther, also an analyst at Savills commented:

“The economic pull of Manchester continues to be a major factor in the strength of the northwest property market, and we’ve seen a notable increase in interest from buyers outside the area, particularly from London and the southeast.”

The forecasts do, however, make a number of assumptions that are not by any means guaranteed. Those include a Conservative majority proving to be the outcome of the impending general election and a no-deal Brexit being avoided. They also presume the UK will avoid a recession over the coming five years – which in turn could be influenced by the first two conditions.

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