While the UK property market is very much in the news at the moment, with many experts predicting a downfall, what did February show compared to last year? Many will be surprised to learn that total sales in February were up from 64,270 last year to 84,950 in February 2014. This not only shows that demand for property is still showing underlying growth but it also shows a growing liquidity which has been missing for some time now. The fact is that the more liquid the UK real estate market the more attractive this will be for long-term investors.
There was also another bonus for the UK real estate market with news that rents have increased 1.6% year-on-year with the average across England and Wales now standing at £743 a month.
Are we still headed for a property price bubble?
Just this week the Bank of England suggested that the UK government had “got it wrong” with an extension of the Help to Buy scheme. There is growing concern that the authorities are feeding the house price bubble which the Bank of England and other financial institutions are trying to play down. Whether or not we are headed for a dangerous house price bubble is debatable but it seems that any slight fall back in house price growth or demand seems to bring in a new array of investors.
Quote from PropertyForum.com : “The UK property market is in effect two very separate markets with London and the rest of the UK often showing different levels of performance. We would be very interested to learn your opinion of the UK market at the moment and the prospects for the medium to long term.”
Even though the increase in total sales will grab the headlines it is perhaps the 1.6% increase in rent which people should take more notice of. Not only does this increase income for landlords and make buy to let more attractive but it also increases the yield on property thereby ineffective justifying short to medium term asset price rises.
The growing rental market in the UK
The rental market in the UK is something of a self-fulfilling prophecy. As house prices continue to rise, more and more people are unable to raise sufficient finance to get a foot on the property ladder. This then leads to more individuals, couples and families renting their property which leads to more opportunities for buy to let investors, thereby pushing the price of property higher and higher.
During the recession there was limited upwards pressure on rental values because of the difficult situation with the economy and the employment market. While some politicians would have you believe the recession is still continuing below the surface, despite economic data to the contrary, the increase in rental values is a marked change. This would seem to indicate that there is renewed strength in the UK economy, there is growing demand for rental property and even though the UK property market has increased dramatically over the last few years, could there be more to go?
While the increase in transactions is encouraging and interesting, in light of increased liquidity in the UK real estate market, it is perhaps the 1.6% increase in the average rental value of UK property which is of greater significance. An increase in demand for rental property will almost immediately filter through to the buy to let market and become something of a self-fulfilling prophecy. How will the Bank of England control this new phase in the UK real estate market?