Recent research from PricewaterhouseCoopers (PwC) shows that, even if the overall rate of growth is slowing very slightly, homeowners and landlords can still expect to see growth of 30% by 2025. The PwC analysis cites the average house price as being £221,000 by the end of 2017, meaning that it will rise to £285,000 if the expected growth occurs.
At this pace house price growth will stay broadly in line with wage growth and affordability for first time buyers in particular will continue to be an issue for many years to come.
The one exception to this research is London where PwC expect average house prices to drop by approximately 2% in 2018 and that this negative inflation will continue into 2019.
Richard Snook, senior economist at PwC, said: ‘UK house price growth remained resilient in 2017 despite a weakening economic backdrop, but has shown signs of moderating in the first half of 2018, particularly in London. Affordability in the capital has been stretched due to three factors: a high deposit saving hurdle, increased economic uncertainty relating to Brexit acting as a drag on international investment, and reduced numbers of housing transactions due to stamp duty changes.’
The last point is an interesting one which really sets London apart; the latest stamp duty rates are notably higher in the capital and it would be no surprise if the drag on international investment mentioned above has been heightened by this.
In contrast, regional cities such as Manchester, Sheffield and Leeds have not experienced a slackening interest from international investors. The combination of lower stamp duty, a lower entry price and more vibrant economies is clearly a tempting combination for buy to let property investors.
A further point raised by the PwC research is the issue of housing supply. Previously a lack of new build housing has driven house prices up in the UK and the analysis notes that this could we be the case again in the future.
PwC estimates that a further 110,000 homes a year were needed between 2011 and 2016 to keep up with demand. When these weren’t built house prices shot up in accordance with growing demand. The government has a target of 300,000 new homes a year by the mid-2020s in order to exceed the growing demand – however it seems unlikely that it will achieve this. If it doesn’t, the PwC research appears to indicate that this will act as a growth engine for house price values.
Buy to let property investment is still a lucrative sector if you know where to invest and, as it has been for a long time, it seems that London will remain a place to avoid for the immediate future. Property investors should continue to look to the regions for the best deals.
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