If you follow the UK housing market no doubt you will be confused by the number of positive, negative and neutral articles. It depends on which day of the week you pick up a newspaper as to whether markets are “picking up”,” flatlining” or “treading water”. However, we can safely say that the UK housing market performance is mixed as of today.
Markets within markets
Is it really fair to compare the North of England with the South of England? Is it fair to compare Scotland with London? The reality is that the UK housing market is made up of many niche local markets which do not always move in the same direction. Experts have for many years now suggested that the London property market is a law unto itself when in reality all local niche markets across the UK have done and will likely continue to perform very differently.
That is not to say trends may not be the same but London and the South of England are predominantly focused on capital appreciation while the Midlands and the North of England, has well as Scotland and Wales, are perhaps more focused on rental yields. In effect this gives investors in the UK a whole array of different investment tools to consider in their quest for long-term capital appreciation and improvement in their cash balance.
At this moment in time properties with double-digit rental yields have a far stronger backbone than those properties where capital appreciation has been the main focus. This situation has been strengthened by relatively low UK base rates, even if they do move higher towards the end of the year, with minimal interest on savings accounts and potential double-digit rental yields in some parts of the UK.
So, if there is any potential switching to do in the short to medium term in theory it should be from those properties where capital appreciation has occurred in recent times over to housing stock with a strong rental yield and good cash flow. Whether you obtain your cash flow by rental income or capital appreciation of a property, cash is still king and perhaps even more so in these challenging markets.
Volatility breeds volatility
Since the Brexit vote over 12 months ago many so-called “experts” have been trying to talk down the UK property market without real success. We have seen a reduction in London property prices of late, albeit from heady levels, but many other parts of the UK are still in positive growth territory on an annualised basis. However, there is no doubt that continued criticism of the UK market is beginning to impact sentiment and with subdued growth in the buy to let market we may see some downward pressure on UK property prices.
That said, it is worth reminding ourselves that the UK currency has fallen by in excess of 20% against the likes of the dollar. In effect dollar investors in UK property have received an unexpected 20% bonus on their spending power. So, while domestic demand for UK property may be fading slightly there are high expectations that foreign investors, with their welcome currency bonus, could pick up at least part of this slack. The UK market has and will continue to be mixed for some time to come but those who write off the UK housing market do so at their peril.