The residential property market appears to be settling down after the initial Brexit shock. Today, the Royal Institution of Chartered Surveyors (RICS) released its August UK Residential Market Survey*, predicting that UK property prices will rise by 3.3% a year for the next five years, illustrating this increase in confidence.
And this certainly seems to be the case when reviewing this month’s My Property Consultant Property Index Tracker. Although household confidence fell in the wake of the referendum result, Nationwide reported a 3.6% increase in house price growth in London for the last quarter (although Halifax and Rightmove showed a slight decrease), while the ONS House Price Index showed an increase of 0.2% last month, and a 12.6% increase since this time last year.
Click here to view the latest MPC Property Index Tracker: http://myproperty-consultant.london/property-index-tracker/mpc-property-index-tracker-aug-16/
The Council for Mortgage Lenders believe that the mortgage market is well capitalised, resilient and open for business, and will remain so for the foreseeable future. Although buy-to-let house purchase activity remains lower than before the stamp duty changes at the beginning of April, it showed a large month-on-month increase of 8.4%.
One of the key drivers of this recovery is the severe shortage of homes in the UK, according to RICS, and this problem is particularly acute in London. A recent report by the Yorkshire Building society showed that the UK has missed its housebuilding targets by nearly 1.2 million homes since 2004. Furthermore – in 2015, the government pledged to build one million homes over its five year term, but only 142,890 homes were built in 2015 as a whole, 29% less than the 200,000 homes which would need to be built per year to reach the one million target by 2020.
All of this is good news for property investors. Let’s return to the prediction of 3.3% growth for a moment. If you were to buy a property worth £400,000 in London today, and let’s assume it grows in value by the predicted national average of 3.3% each year for the next five years. In five years’ time, that property will be worth £470,502. If you assume £25,000 for taxes, fees and expenses, that’s a profit of £45,502 and a return of 11.4% in an otherwise low-return environment. This return can be even greater by using mortgage finance (in the region of 9% per year). Of course – the key to property investing is to find the areas that beat the national average. And that’s where we come in!
*The UK Residential Market Survey is based on responses from RICs professionals, and is used by the Government, the Bank of England and other key institutions, including the IMF, as an indicator of current and future conditions in UK residential sales and lettings. It is considered one of the best short-term lead indicators of house prices and activity.