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Monday Market Memo | The most affordable UK cities are growing the fastest, while rents spiral in Ireland
October 1, 2018Article by Kirsty Rose
Welcome back to our Monday Market Memo.
UK AFFORDABLE CITIES GROW FASTEST
The most affordable cities across the UK are seeing the strongest house price gains, according to Hometrack’s latest index. Average annual growth in cities currently stands at 3.9%, with gains ranging from 7.5% in Liverpool to -3.9% in Aberdeen.
In the top three cities – Liverpool, Glasgow (7.2%), and Nottingham (6.9%) – average prices are only just passing or approaching their pre-crisis peaks, and the level of income needed to buy in those cities, ‘indicates there is further scope for price growth’, according to Hometrack’s analysis. The city with the most room to catch up with its prior peak is Belfast, which remains 41% below that level, though it posted 2.1% growth in the most recent quarter.
In contrast, the two cities (other than Aberdeen) to have seen price contractions over the past 12 months are also the UK’s two most expensive markets: London (-0.3% and an average price of £485,200) and Cambridge (-0.1% and an average price of £431,500).
IRISH RENTERS REQUIRE POT OF GOLD
Ireland, where property prices are growing at the third-highest rate in the EU (12.3% in the year to Q1 2018), is also experiencing an increasingly severe rental crisis.
A new report from the Residential Tenancies Board reveals that rents in Dublin have increased by 9.5% in the year to Q2 2018, meaning the average renter will need to budget for an additional €135 every month. At €1,549, Dublin’s average monthly rent is by far the highest in Ireland, but its rate of increase is no anomaly. The national average rental inflation for new tenancies stands at 8.4%, and Limerick’s 12.4% annual growth rate is the most extreme (though it has risen from a low base to a relatively affordable €880).
The new figures make a mockery of the government’s policy of rent pressure zoning, introduced in 2016, which was supposed to cap rent rises at 4% per year in cities and areas of high demand. Unabated rental inflation has prompted politicians across the spectrum to call for stronger measures, including powers to better enforce pressure zone rules, a crackdown on short lettings sites like Airbnb, tax relief for tenants, and emergency rent freezes.
HOLIDAY HOMES MORE ABOUT PROFIT THAN PLEASURE
Recent research by Savills highlights the fast-changing nature of the market for second homes. The most noticeable trend is a far greater emphasis on income generation over personal usage. The proportion of purchasers motivated by both rental income and own usage overtook own usage only as the main reason for buying in 2015, and income generation only is expected to overtake own usage only in the near future too. This is especially apparent among Brits, of whom 34% of owners turn a profit from their holiday homes today, well up from 15% in 2011.
Interestingly, the highest average net yield of the eight countries surveyed (all European bar the US) was to be found in the UK (5.6%), with the lowest in France (2.5%). The highest average gross yield was achieved in the US, but the US also had the highest running costs, causing returns to drop from 9.4% gross to 4.9% net.
The average purchase price for a second home was $291,000, which is 37% lower than it was a decade prior, primarily due to the expansion of the market for apartments – which now represent 34% of properties purchased, up from 26% in 2007.
The majority of second-home owners of all nationalities identified their home market as their first choice for their next investment, reflecting a greater focus on income and ease of management than lifestyle benefits.