When you bear in mind the uncertainty surrounding the UK economy, problems in China and a relatively weak worldwide economy, how would you expect UK property prices to perform? Well, the UK Land Registry has this week announced the price performance of UK property in January 2016. This has seen the biggest monthly increase in UK property values, coming in at around 2.5%, for more than a decade.
Why is the UK property market booming when the economy is overshadowed by uncertainty and the worldwide economy is not exactly racing ahead?
Is it down to buy to let investors?
There has been much talk in the newspapers over the last few months with regards the UK governments plan to introduce a three percentage point stamp duty hike which will impact buy to let investors. This move will come into play in April and many experts have been expecting strong demand from buy to let investors before the deadline. However, is the record rise in UK property prices in January really down to buy to let investors?
Lack of suitable property
Time and time again we end up discussing the lack of suitable property across the UK, the fact first-time buyers are not able to afford to purchase a home which as a consequence is pushing many potential first-time buyers towards the rental market. When you also throw buy to let investors into the mix, looking to purchase before the significant cost increase comes into play, it is perhaps no surprise that property prices are being pushed higher.
A monthly rise of 2.5% is way above inflation and will further increase the gap between affordability and prices. We may well see a quiet period from April onwards, after the stamp duty increase comes into play, but do not expect the buy to let market to collapse.
Regional variations
The average increase of 2.5% during January hides a significant variation across the UK property market. Many may be surprised to see Wales record the largest monthly increase at 3.7% while the north-east property market continues to struggle. The performance in January has obviously boosted annual property price rises which averaged 7.1% over the 12 months to January 2016.
London recorded an increase of 13.9% over the 12 month period but the crown goes to Reading which saw a very impressive 16.1% rise in property prices. There were increases in the region of 15% in Luton, Thurrock and Slough as well as double-digit returns in Brighton Hove, Bristol, Hertfordshire, Milton Keynes and South Gloucestershire to name but a few. Again, the north-east of England fared worse with an increase of just 0.2% over the 12 month period.
Can this trend continue?
It is highly unlikely that the UK property market will continue to push ahead at anywhere near this rate. There is no doubt buy to let investors have had an impact but let’s not forget the overall size of the UK property market. It is more down to the lack of suitable/affordable properties which is squeezing prices ever higher – creating something of a self-fulfilling prophecy as more are pushed into the rental market, increasing demand for buy to let investment, etc. Are we stuck in an eternal loop with property prices pushed higher and higher?