In our last article we covered the subject of floodplains and the fact that misinformation has led to the creation of inaccurate flood maps of the UK. While the misinformation has been corrected by local bodies it will take some time for this to filter through to the next flood map publication from the Environmental Agency. As a consequence, investors looking at some parts of the UK will be under the incorrect impression they have in the past experienced floods and may well do so in the future.
As a consequence many investors will be asking if they can trust government house price statistics as a basis for future investment strategies.
Local house prices
The published UK house price indices are weighted averages taking into account different prices and different types of property right across the UK. Even local house price indices are a hybrid of the basic information in the region. As a consequence, with the figures calculated on the same basis each time this will help with reading trends but is it really as helpful as it could be when looking at specific property markets?
Whether or not you believe the information given out by the government, whether rebased, weighted or recalculated in anyway, nothing beats good old-fashioned research on the ground. If you are interested in property in a certain area of the UK, simply approach estate agents in the region and ask them for their thoughts. Read the local newspapers and follow the region on the Internet to see how house prices have performed historically and what tends to impact returns.
Experience helps
The longer you invest in the UK housing market the more of a feel you will get for different trends and whether specific valuations tie up with rental yields. Obviously, each different area of the UK has its own specific characteristics whether this is relatively low yields, with investment centred round capital appreciation, or relatively high yields, with limited capital appreciation. The local economy and the demographics will have a major impact upon demand for houses and dictate the short, medium and long-term direction of prices.
While London has for many years now been the centre of the UK housing market it seems that finally some London property investors are cashing in their London premium. We know from recent figures that a number of London homeowners are selling up and acquiring larger properties outside of the capital at a significant lower price compared to similar London properties. It has taken many years for this to happen, Brexit has been the catalyst but whether this is the beginning of a long-term trend or simply a short-term blip remains to be seen.
Do your own research
When looking to invest in property it is important that you understand the local market yourself and are not simply jumping on the bandwagon. By all means read advice from the local property experts, the pros and cons of investing in a certain regions but ultimately it is your money and your choice. As we touched on above, house price indices give an idea of house price trends but because of regional weightings and different types of property it can sometimes be difficult to match these “average house prices” with the real world.
In many ways this is similar to stock market indices such as the FTSE 100 which is made up of a range of different sectors, and stocks, with different weightings. Even if the long-term trend is upwards, not all sectors will be in demand and performance will vary significantly in reality. So, by all means assume the trend is your friend where house price indices are quoted but this should not stop you from doing your own research on the prospects for local markets.