A look back to UK property in 2018
The UK housing market has experienced below average growth in 2018. Brexit-related uncertainty has dissuaded some foreign buyers, which compounds the government’s sustained crackdown on buy-to-let investors. Housing also remains unaffordable for some would-be buyers.
Nevertheless, the broader picture is of continued growth and stability, albeit with significant regional variation. The ONS UK HPI shows UK house prices increased on average by 2.7% in the 12 months to the end of October. This is above other prices in the economy, with CPI inflation up by 2.4% over the period.
By the same token, overall transactions in the 12 months to the end of October numbered 1.19m. This is just -2.1% lower than one year ago, and very much in line with the last 5 year trend.
Trading activity on the Resale Market
Property Partner’s own marketplace has broadly mirrored the wider market. Our investors are demonstrating greater appetite for residential blocks in the midlands and North, as well as high yielding Purpose Built Student Accommodation.
By contrast, demand for low yielding London properties has reduced markedly. Such assets typically trade at discounts to underlying asset value on our Resale Market. With a smaller number of buyers now holding the whip hand, they’ve been able to price in uncertainty and secure attractive deals on investments in the capital.
Property outlook for 2019
Our expectations are for more of the same in 2019, at least until some clarity returns as to the UK’s future relationship with the EU. In the meantime we see the UK residential market as a land of opportunity for patient investors who can move quickly and buy in cash. They can more often take advantage of sellers who need to extract capital and accept lower prices.
Looking to Q1 2019, a sudden happy ending to Brexit could provide a positive bounce for the market. However, we view it as prudent to plan for further uncertainty and market cooling. We are adopting a firmly opportunistic approach to our Q1 2019 investment strategy.
Ultimately, the fundamentals of the UK housing market have not changed since the EU Referendum and will not change in 2019. A shortage of supply of good quality accommodation across tenure types, in the face of growing demand for housing, will continue to support house price growth in the medium to long term.
Similarly, the 80% of dwellings held by owner occupiers (63%) and social landlords (17%) don’t trade like a commodity. They are therefore likely to continue to demonstrate a stickiness to their pricing, in the face of cooling investor market sentiment.
Consensus also forecasts that interest rates will remain low for the long term. This will help ensure affordability among a sufficiently large pool of potential buyers to keep the market ticking over.
Ultimately, UK property still represents a resilient, income producing investment. It is not subject to the short term sentiment-based volatility of the stock market and other asset classes.
We believe that UK property investments completed in 2019 will continue to deliver the strong performance over the next 5 to 10 years, which investors have become accustomed to over the previous 20 years.