In our previous articles, we discussed how the UK real estate market behaved in 2021. The year ended with a slight decrease in demand in December, but by January, new buyers were setting new records in terms of the number of applications. This demand has not gone away yet and continues to put pressure on prices. According to Zoopla, the average house prices in the UK rose by 8.4% in May compared to May 2021, and in London – by a more modest 3.6%.
A slow but steady increase in supply has become the distinctive feature of recent months. In May, 7% more houses than the average for the previous 5 years were put up for sale. And that is great news for buyers. Especially for those who seek to settle in such boroughs of London as Kensington and Chelsea. The number of new properties for sale there increased by a record 53% in April!
Demand is up, supply is up, and prices are up but sellers now need to put in more time to sell their properties. This means buyers get the opportunity to negotiate and to allow themselves more time to make the decision. This is true mostly for the areas outside of London. In London itself, there are mixed trends, with three-bedroom houses now selling longer and two-bedroom apartments selling faster than before.
Zoopla considers these developments as early signs of a slowdown in prices and the UK market as a whole. We prefer to wait for the results of the next quarter to draw conclusions about this in relation to London.
Zoopla reports that international buyers are finally fully back in the capital. During the pandemic, demand from them fell due to restrictions on crossing the border, quarantines and medical testing. Now foreigners are once again showing serious activity in Central London. Many of them consider these properties undervalued due to the fact that prices in Central London have risen very moderately compared to the rest of the country.
We agree with this opinion. Back in May 2021, we noted the potential of Central London properties for buyers, even despite the turbulent market at the time. Such turbulences can be sensitive for investors in the short term, but bring profit to those who buy with the long term in mind. Ultimately, the winners are those who choose a long investment horizon (at least 8-10 years) and enter the market at such moments as now – when properties are undervalued.
There is an acute shortage of supply in the London rental market, and prices continue to soar. Over the past year, they grew by 10.3%, and in the first quarter of this year, are already up by 15.7% according to Zoopla.
Being conscious of this, more and more tenants are looking to stay in their current property. They prefer to extend their leases by accepting the proposed increase rather than moving to a new and more expensive location. We advise our clients to follow this strategy too. Especially in Central London, where rents in the first quarter of 2022 rose even more – by 21.8% (according to Lonres).
The lack of rental stock supply in the UK and London, in particular, is a severe structural problem: high-quality properties are always in short supply. That is why now is the best time for a buy-to-let, especially in Central London. These properties are undervalued and we estimate that both prices and rental rates will grow. Both apartments and houses can be quickly rented out and can often be purchased with tenants already living there.
One of the main advantages of buying property in the UK is the absence of annual property tax. That is why the cost of ownership here is lower than in many major cities of the world: New York, Hong Kong, Vancouver, and Madrid. If you own and let a house or apartment, it does not give the highest yield (approximately 2-4% per annum). But the advantage is that this is a consistent and secured income, and the cost of the property itself is also being capitalized.
In the next article, read about our experience, insights and advice we give our clients in the current market.
Published 30 May 2022