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Savills predictions come true for happy investors and the future looks bright with 5 year forecast

November 19, 2013Article by Ray Withers

Global real estate giant Savills is a forbearer of good tidings for the regional UK buy-to-let market. The Q4 2013 report reveals a lucrative five year forecast for investors in residential property, while those wishing to get onto the property ladder continue to face the challenges of ‘generation rent.’

The report projects a five year price rise of 25% and an associated drop in traditional mortgage availability after the initial flurry of Help to Buy. There are encouraging signs that the seeds of recovery are becoming more widespread in prime markets and the proportion of London buyers has increased in every part of the prime regional market. It also shows that prices in other parts of the UK should start to outperform London at some point over the next five years.

2014 to be the year of property ‘ubertowns’

Editor Yolande Barnes writes: “The UK housing market is now the preserve of the wealthiest 50% of households – and only if they have access to sufficient capital to use as a deposit. Despite this, our analysis shows the housing market is not in bubble territory and could see as much as 25% growth over the next five years.”

She continues: “We believe 2014 will be the year of the southern ‘ubertowns’ and the time when then London-rural prime price gap will start to close. UK housing is facing a dichotomy of opposing forces. It will be more difficult for ‘Help to Buy’ measures to counteract the negative forces of credit scarcity, lack of cash and political uncertainty – but 2014 is probably the year it starts to do so.”

Industry experts back positive findings

Knight Frank backs the forecasts with its own findings. In the immediate future, house prices look set to soar by 7% in 2014 and 5% in 2015 as the Government’s Help to Buy scheme gives the market its initial boost. Average prices in London are projected to jump a massive £76 each day in 2014 and regional markets, while not quite as high, will see a similar upsurge.

Liam Bailey, global head of residential research at Knight Frank, comments: “For the first time in five years we can be broadly positive about the UK housing market. Importantly these improvements are not limited to London, they are spreading.”

Almost everybody in the industry believes average prices will rise in 2014. While Knight Frank’s prediction is the highest at 7%, Savills is close behind at 6.5%, followed by Jones Lang LaSalle at 5% and Strutt & Parker at a more conservative 4%.

Stock shortages slow down purchase boom and boost rental market

There are, however, concerns about stock shortages. As well as a lack of properties on sale, there aren’t enough new homes being built. The Royal Institution of Chartered Surveyors (RICS) says that while housebuilding has rebounded during 2013, it’s not enough. Simon Rubinsohn, chief economist at RICS, warns: “We’re still way behind in terms of building enough homes to meet the nation’s growing housing need.”

While prospective first home buyers might be ready to jump on the ladder with Help to Buy, the rental market continues to go strong. Some areas of London saw rents leap a massive 30% from 2011 to 2012. According to LSL’s buy-to-let index, the average rent in England and Wales currently stands at £757 a month, up by a below-inflation 2.1% over a year. Challis forecasts rent increases of 1% to 2% over the next three years and Savills predicts a rise in line with inflation (3.5%) in 2014 and 2015 and a total of 21% over the next five years.

The Bank of England has pledged to maintain a low base rate until employment falls below 7%, but it was recently announced this target could be reached as soon as the end of 2014. Risk-averse homebuyers and investors, therefore, would do well to start exploring mortgage availability sooner as opposed to later.

Liverpool and Bradford investment hotspots

Ray Withers, Property Frontiers CEO, comments: “House prices in August 2013 were 3.8% higher than 2012 at £247,000, topping the previous all-time high recorded in January (according to the Office for National Statistics). But it is the growth in the private rented sector which should be of real interest to investors. The PRS has growth by 2 million households since 2001, with up to a million new PRS households expected in the next five years.”

He continues: “Strong regional areas are providing to be investment hotspots right now. In particular, Liverpool, which was named as a top buy-to-let location in the Daily Telegraph; and Bradford, since it was selected as the site of the new £260 million Westfield shopping centre. With the currently still-low interest rates, availability of BTL mortgage finance and five year forecast in price rises, now is the perfect time to expand your UK residential portfolio.”

Get in touch on +44 1865 202 700 for early bird information on our soon-to-launch UK buy-to-let investments, including a prestigious development guaranteeing yields of 8.5% (gross) for investments from £75,000; and luxury city centre apartments delivering returns of 9% on investments from just £50,000 and offering 50% developer finance.

Author

Ray Withers

Ray has over 17 years’ experience in the international property market and bought his own first international property investment back in 2002. Aside from running Property Frontiers, Ray has been involved in residential, hotel, student and commercial property investment and development in both the UK and overseas and co-wrote "Where to Buy Property Abroad - An Investor's Guide". As Founder and Trustee of the Frontiers Foundation, Ray is directly involved with many of its projects to ensure they have a direct and tangible impact in individual communities across the globe. He is passionate about property, travelling, scouting out new opportunities and finding time to spend with his young family.
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