• The Property Partner UK residential property index showed a total return to investment of -0.64% in February, with capital growth of –0.89% and a net income return of 0.25% for the month.
• Over a 12-month period the total return was 3.05%, with capital growth of 0.07% and an income return of 2.98%.
• The index measures the change in average house prices and rents from the Land Registry and ONS, applying deductions for operating costs and refurbishment to generate a net total return to investment. It uses the latest figures available.

UK property market index performance at 28 Feb 2019	Income return	Capital growth	Total return	Rental growth
Monthly return	0.25%	-0.89%	-0.64%	0.11%
Annual return	2.98%	0.07%	3.05%	1.08%
5-year average annual return	3.16%	4.24%	7.52%	1.78%
10-year average annual return	3.36%	3.20%	6.66%	1.60%

UK residential property continues to demonstrate positive performance, with an annual total return of 3.05%, albeit below the longer-term trend level of 7.5% p.a. seen over the past five years, due to slower house price growth.

On a regional basis, Wales was the strongest performing region over the past 12 months with a total return of 6.34%, while London delivered the lowest return of -1.35% due to weakness in the prime end of the market.

UK residential market trends, February 2019

The UK residential property market continues to remain resilient in the face of broader market uncertainty.

Average house prices stood at £225k at the end of February, according to the Land Registry UK HPI based on all UK property transactions. This represents an increase of 0.6% over the previous 12 months, below inflation (CPI 2.2%) and below the long-term house price growth trend of (7.5% p.a.). This suggests political and economic uncertainty has begun to have a more noticeable impact on the housing market, albeit with prices still increasing at a low rate.

The average cost of renting property increased fractionally to £865 in March, with annual rental growth steady at 1.1%. This is below the longer term trend of closer to 2% per year, as well as wages and other prices in the economy, indicating that the real cost of renting has reduced slightly in the past year, on average across all regions.

The overall UK residential sales market remains active in spite of the regular reports of slowing listings and buyer demand from traditional estate agents, hinting at increased competition in that industry and a focus on London, where activity has dropped off noticeably.

96,300 residential transactions were registered in November, a 0.4% increase on March 2018, bringing the total number to almost 1.2m over the course of 12 months. This is -1.5% below the previous 12 month period, reflecting a degree of slowdown but still well above the post financial crisis average.

At the same time mortgage approvals have remained stable over the past 12 months, in spite of falling demand for finance from buy-to-let investors, put off by the removal of mortgage interest rate relief.

Private sector housing completions increased by 14.2% in 2017 but remain well below pre-financial crisis levels and with overall net additions of 217,00 still well short of the 250,000 additional homes the government believe are required each year to meet demand.

UK house prices were 8.2 times average individual earnings in February, albeit with significant regional variation. This represents a 2.5% decrease over the past 12 months as house prices have grown at a lower rate than wages, suggesting housing has become slightly more affordable in the past 12 months. The peak level reached in 2007 prior to the financial crisis (August 2007) was 8.6x.

In spite of high house prices, overall affordability among existing home owners is strong given the extremely low cost of servicing mortgages, with average interest rates on a 5-year fixed deal at 75% LTV currently a shade over 2%, compared to above 6% in 2008. The average cost of mortgage interest was 8% of average earnings in Q4 2018, which far lower than historical norms.

Bank of England data shows half of UK homes are currently mortgaged (13.5m / 27m) with a total mortgage value of £1.4 trillion, representing 20% of the total housing stock value of approximately £7 trillion, at an average LTV among those mortgaged properties of under 47%.

Low levels of debt and low costs of servicing debt mean overall affordability among home owners is strong, providing a significant buffer against potential future interest rate rises. BOE guidance indicates interest rates are set to remain low by historical standards.

Property Partner investor sentiment

In April 2019 we carried out a survey of our investors to find out what they think about the health of the UK property market and how they are going to invest over the next six months. Take a look at what they said here.

Data Sources

• UK house price index, Land registry, ONS
• Private rental index, ONS
• Average rental levels, ONS
• UK residential property transactions, HMRC
• Mortgage approvals, Bank of England
• Housing completions, National statistics (Gov.uk)
• Average wages, ONS
• Average mortgage interest rate; Bank of England

Capital at risk. The value of your investment can go down as well as up. The Financial Services Compensation Scheme (FSCS) protects the cash held in your Property Partner account, however, the investments that you make through Property Partner are not protected by the FSCS in the event that you do not receive back the amount that you have invested. Past performance is not a reliable indicator of future performance. Forecasts, if stated, are not a reliable indicator of future performance. Interest and capital returned may be lower than expected. Gross rent, dividends, and capital growth may be lower than estimated. 5 yearly exit protection, exit on platform, exit in line with a specific investment case or fund strategy, subject to price and demand. Property Partner does not provide tax or investment advice and any general information is provided to help you make your own informed decisions. Customers are advised to obtain appropriate tax or investment advice where necessary. Financial promotion by London House Exchange Limited (No. 8820870); authorised and regulated by the Financial Conduct Authority (No. 613499). See Key Risks for further information.