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OCT TO DEC 2017

QUARTERLY REPORT Q4 2017 UK PROPERTY MARKET

Q4

2017 was an interesting year for the property market. There was a lot of confusing news about the health of the market, whether investor enthusiasm was waning and what the future might hold. However, all of this merely served as a distraction from the main point – property values and the rental market both continued to grow.

Q4 consolidated these trends, with Nationwide reporting annual house price growth of 2.6%. Whilst this is lower than the 4.5% growth recorded in 2016, it is still impressive when you bear in mind that there was a fair amount of disruption across the year. Landlords in particular faced changes, with their tax code being altered and a mooted ban on letting agent fees to tenants. Alternatively, Hometrack

reported house price inflation of 5.4% over 2017, providing a more positive outlook.

The reported growth in house prices has also continued to affect younger potential homebuyers who are struggling more than ever to get on the housing ladder. To illustrate the scale of the challenge facing millennials, reports in December stated that, on average, young people are spending more than £100,000 on rent before buying their first home.

Of course, this situation continues to be good news for investors and landlords. Q4 is the traditional time for predictions about the coming year, and the view across the board is largely positive. 2018 is set to be an excellent year for investors with rising rental yields and good prospects for capital appreciation in the regional cities.

Introduction

Key Points

Hometrack reports house price inflation of 5.4% over 2017

2018 is predicted to be a good year for investors

Central London market remains risky

Q4NORTH WEST PROPERTYPERFORMANCE REVIEW

Regional rental trends were the story for most of 2017, and Q4 was no different. Despite small dips in regions such as the North West – which can be explained by the time of year where fewer people move home – regions outside of London and the South East in general are where the action is for landlords.

The North West and the West Midlands both retained high rental rates which, combined with relatively lower house prices, ensure these regions will remain the best options for current investors and aspiring landlords of the future. The North East also continues to be an interesting area of the country. As with the aforementioned regions, cities such as Newcastle and Sunderland have low house prices and growing rental yields. All of the Northern regions are predicted to continue growing at a significant rate in 2018.

Whilst there were some news stories trumpeting a slight revival in the London rental market, the gains remained just that: slight. In truth, there weren’t even gains as such. The reality is the rate that house prices were falling simply slowed a little rather than there being any actual gains for landlords. Indeed, the Central London market suffered the indignity of ending the year as the worst performing market – the first time it has done so since 2004.

Rental trends Q4 2017

UK average(without London)

Average rent: £777

Quarterly change: -1.5%

North West

Average rent: £641

Quarterly change: -3.0%

Wales

Average rent: £655

Quarterly change: +3.3%

South West

Average rent: £787

Quarterly change: -1.5%

North East

Average rent: £578

Quarterly change:+2.5%

Greater London

Average rent: £1,930

Quarterly change: +0.5%

West Midlands

Average rent: £676

Quarterly change: -1.0%

East Midlands

Average rent: £623

Quarterly change: -0.4%

Stats: Rightmove

Student accommodation investment to soar

*This report is based on data taken from Nationwide, Rightmove, Knight Frank and Mortgages for Businesses. The information in this document was correct at the time of its publication, however it should be used for guideline purposes only.

Figures from Q4 showed that the popularity of investing in UK Purpose-Built Student Accommodation (PBSA) has not abated. The underlying basis for the increased amount of money going into the sector are the facts that the overall student population is growing, that universities cannot or will not provide enough high quality accommodation for everyone, and that the cost of it is going up, which leads to students looking for better value for money in the private sector.

All of this held true in Q4, and the predictions for 2018 confirmed that analysts expected it to continue for another year. UCAS, the body responsible for higher education applications in the UK, confirmed that more people than ever started a university course in 2017, and that entry rates had risen every year since 2013 in England and Scotland.

Given that universities are not building any new accommodation on a large scale, it is no surprise that investors have been eagerly entering the market to take advantage of the growing number of potential tenants. When this growing demand and lack of supply was combined with a weaker-than-usual Pound, it is no surprise that Savills estimate that the total investment in PBSA reached more than £5bn over 2017.

The mortgage market can be extremely complicated. Whether you are trying to get a new mortgage for your next investment or remortgage something from your current portfolio, there is a lot of conflicting information out there which can be portrayed in many different ways. However, the bottom line is that the market is generally healthy.

What can be argued is that the market has changed somewhat thanks to new tax laws and the like. An obvious illustration of this is the increasing number of buy-to-let mortgages being taken out by limited companies. Figures from Kent Reliance in Q4 2017 show than more than 70% of buy-to-let applications made in the first nine months of 2017

were through limited companies. This is a 45% increase over 2016, and a sure sign that the market is changing, as well as a sign that the market is as healthy as ever. Changes are not necessarily bad for the sector.

Gross mortgage lending reached a total of more than £20bn in December – a surprisingly good result given that December is normally a quiet month according to UK Finance. It was also confirmed earlier in the quarter by Paragon that at least 17% of all mortgages were for buy-to-let properties. That is a big slice of money going into the buy-to-let market, and it makes it hard to believe that the sector is struggling.

Q&AI’ve heard that the buy-to-let mortgage market is suffering – is this true?

“It is estimated that more than £5bn was

invested in PBSA over 2017”

Savills 2017

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Q4 2017