Is UK Property still a good investment?

For many who are eyeing the property market, considering the timing to dip in the market, the signs can be confusing.

Alongside the economic uncertainty of Brexit, certain areas have experienced slowing growth while purchases have been subdued. Landlords and buy-to-let investors are dealing with regulatory and taxation changes while owner-residents hold back from moving as interest rates could increase thus affecting mortgage affordability.

Towards the end of 2018 The Bank of England governor Mark Carney warned that prices could drop by 35% if Brexit went badly. Conversely, some view this market backdrop as ideal conditions for shrewd investors to find opportunities to deliver superb returns.  Is UK Property still a good investment?

The market behaves differently within each city, with houses streets from each other behaving very differently. The place in the housing cycle will differ depending on location within the UK, with certain Northern cities such as Manchester & Liverpool experiencing huge growth, some areas in scotland are struggling. The ripple effects of the recent monumental price rises in London and the SouthEast are yet to be seen in some areas.

Richard Donnell, director of Hometrack said that “Five cities are 50 per cent higher [in price terms] than they were 10 years ago,” said Mr Donnell, with Oxford, Cambridge and Bristol among them. “But there are four cities such as Glasgow and Newcastle that are still at 2008 levels or even lower.”

This mixed message is compounded by underwhelming levels of activity in the market, as the number of transactions hasn’t moved for four years (to the end of 2018). However, in Central London, turnover has actually reduced by 20% in the same period. With fewer people buying, an attractive environment has been created for those who are buying, as they can demand more for their money, with average selling prices 10% lower than initial asking prices in the capital. However, this differential is far less in Manchester & Birmingham, two of the UK’s next largest cities after London, indicating a far more buoyant and active market.

Another key factor is that those who reside in their own homes will consider the viability of their purchase from a numbers and figures perspective and more from an emotional one.

Nevertheless, Ed MEad from viewbar believes it’s a buyers market, even in London, “I think it’s the best time there’s ever been to buy in London.”  Independent buying agent Henry Pryor agrees, “Uncertainty is bringing with it opportunity because people don’t know how their sale is going to go, sometimes people are selling for less than they might have been able to get and in other cases other people are sitting tight.”

As a result of the uncertainty and fear from sellers, vendors are becoming more focused on ‘off-market’ sales – actively seeking buyers without advertising the house for sale in order to test the market.

For those looking towards property for investment and thus the Buy to Let sector, tax and regulatory changes have created a difficult environment by raising costs, causing a drag on profits. The higher rate tax relief on mortgage interest is disappearing for one, and stamp duty has increased also.

Richard O’Donnell from Hometrack still believes that buy-to-let can offer a regular and robust income stream.  With rents rising, this can offer an attractive monthly cash flow, with potential capital gains an added bonus.

While rental yields in London compare unfavourably to those in many burgeoning cities in the north, many investors from the capital and overseas are searching north for greater returns.  Manchester, Liverpool and Leeds amongst others, have offered higher rental yields and margins to many investors with a lower entry price as well.

This brings with it risks of unknown areas and the need for local market knowledge to ensure good deals are sourced. Investors should ensure they deal with reputable companies who specialise in the local area can guide investors on arms length transactions. 

With the awareness that Brexit will cause issues in the property market, uncertainty remains, and many have adopted a wait and see approach, with concerns in some quarters about potential price drops. However a long term view is also being encouraged amongst investors, with short term volatility unlikely to set investors back in the long term, with the safety and economic stability of the UK remaining a huge draw.

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