On location

London is impossibly expensive for some investors – so where else should they look, asks Kate Chapman of AB Property Marketing

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It is a telling time for the UK property market. Headlines speak of spiralling house prices, far outpacing the modest average wage growth being seen across the UK, and it appears that the current and future prospects in the industry are a hot topic for all. It seems that everyone has an opinion on the UK’s housing market, whether debated at the dinner party ­table or spoken of on the school run. As many questions are being posed as answers put forward.

Emerging from a shifting economic backdrop, what is clear is that the country is undergoing a period of great change. With the once-long-held dream of property ownership slipping from the grasp of many, some are speaking of the UK finally becoming more like its European counterparts, where home ownership rates are low and owning property is not necessarily seen as preferable to renting.

Many are finding the exceedingly high deposit rates of buying their own home unachievable, and this is resulting in growing numbers finding that long-term renting is becoming their norm. From this, therefore, the UK has seen a buy-to-let boom take hold in recent times, with savvy investors jumping on the property bandwagon to fulfil this need and, in turn, to bolster the country’s coffers.

A changing property landscape is beginning to emerge, and for those looking to cash in on this evolution, the question of how best to do this – to answer the shifting demand – is top of the priority list.

Once the central focus of keen-eyed investors, London as a whole continues to hold on to its reputation as a hugely desirable location, with the prestige of owning a home in the capital remaining strong. However, for those crunching the numbers, it is clear that the city’s situation is far more complex than its purely international status would have one believe.

Although overall there is a steady demand for rentals, buyers need to purchase with great care in order not to be burnt by incredibly high property prices. Primarily, this means choosing a London location carefully.

According to the recent Land Registry House Price Index, released at the end of March, the average property price in London stands at £530,368, far above the national average of £190,275. Thankfully for those looking to buy, there remain untapped pockets of potential where the entry point is far lower, yet which are still set to enjoy impressive capital growth as prices rise, alongside healthy rental returns. Knight Frank, for example, is predicting central London house price cumulative growth of 20.5 per cent in the period up to 2020 but this will be trumped further still by prices on the city’s fringes and commuter belt, where 23.4 per cent growth is predicted.

A major impact on the city’s fringes is the nearly constructed east-west Elizabeth Line, the Crossrail link that will run through the capital – which comes into operation from December 2018 and which will in turn have a huge impact on local house prices. One such area sure to be affected is Ilford, already popular and with a family focus, ample shops and restaurants (Zoopla reports that house prices here have risen 5.71 per cent over the past year). With the Elizabeth Line passing through, Ilford is on track for further increases.

Jonathan Stephens, managing director of Surrenden Invest, a property consultancy specialising in high-yielding buy-to-let investments, explains more: “We are working on the basis that key areas around the new Elizabeth Line are likely to see a minimum of 8 per cent growth each year between now and 2020, and Ilford is one location that will be central to this. The new route will result in large-scale gentrification of areas that currently remain relatively affordable, meaning that now is the time to get on board.

“The long-term result of this will mean that Ilford will become an even more desirable place to live, leading to sustained future growth. This will impact all property types, but we are finding that new-build, modern properties are especially drawing great in­terest within the Elizabeth Line catchment area.”

The impact of the rail development shows how important it is for investment buyers looking in London to choose their location carefully. The flipside of this is that, primarily because of overpriced stock, the appeal of London and the south in general may well be on the wane overall. Under the government’s wider economic plans, great focus has been put in the past year on what has become known as the Northern
Powerhouse and this has led to growing numbers of investors looking north.

Sitting at the centre of the Northern Powerhouse, Manchester is a major focus of the investment and expansion that is taking place, in part to redress the north/south divide, and it is already seeing the positive effects.

A central beneficiary of the HS2 rail line, linking Manchester (and Leeds) with London and cutting journey times by an hour, the city is also undergoing major improvements to its transport network and also enjoying city-centre regeneration, supported by the huge amount of FDI pouring into the city.

Besides this, Manchester is witnessing a significant population expansion, with growth significantly outpacing that of the UK overall and ever more businesses moving their operations to the city. The recent Savills Spotlight: the Future of Manchester report predicts that the city will need to house an additional 36,000 office workers in the next ten years, which, given the current average annual property shortfall of 5,100 homes and the city’s rising population (it is forecast to grow by 20 per cent between now and 2025), will be quite some feat.

As Stephens explains, this is having an unprecedented impact on housing demand and investment prospects: “The young professionals flocking to Manchester are going to want well-located, high-spec homes with plenty of amenities like secure parking and on-site gyms. If Manchester is serious about being the centre of the Northern Powerhouse then its property sector needs to be building homes that are worthy of that position – and these are the properties that serious investors should be snapping up today.”

Recent Budget measures by the Chancellor have also encouraged investors with their finger on the pulse to turn their attention northwards. George Osborne alluded to the Northern Powerhouse in his statement to the Commons last month, saying the government was “making it a reality” and adding information about road improvements in the region, announcements of a new tunnel linking Sheffield with Manchester, and the green light to the HS3 Manchester-to-Leeds line, all playing into a growing focus on the north-west. It is certainly not grim up north!

Not only have the past 12 months been witness to a great evolution in the investment prospects of some of the UK’s major cities, with London and Manchester just two examples, but there have been further major government announcements that have opened up debate within the industry on their impact, too. Since 1 April, anyone purchasing a second property in the UK has had to pay an additional 3 per cent stamp duty, causing murmurings in the industry that this will stunt long-term sector growth.

Short-term, in the run-up to the April deadline, many agents reported a boom time of investment sales, as many people sought to beat the additional duty payment. Whether figures will drop off dramatically from pre-announcement levels as the market begins to settle again remains to be seen. Stephens thinks not, however. He says: “Compared to the majority of international real-estate markets, closing costs in the UK will still remain comparatively low – some overseas buyers are used to paying up to 15 per cent to close a deal back home. UK buy-to-let looks likely to continue to be an attractive asset for those seeking a savvy investment and residential property is predicted to remain the UK’s most profitable asset class long
after spring 2016.”

There is no denying that we are living through a telling time for the UK property market, as the government seeks to balance the books while steadying the market and enjoying economic growth. What is clear is that the compelling debate about the present state
of, and prospects within, the industry both for those on the shopfloor and for those putting their cash into the sector, is set to continue. All eyes will remain on the property sector for the foreseeable future and the emerging results are sure to be intriguing. 

For information on investing in the UK property market, contact Surrenden Invest on 020 3372 6499 or visit: surrendeninvest.com