UK Property News

We aim to bring our clients regular news stories about the UK property market so you can keep up to date with issues affecting the market.

Updated 02/07/2007

BUY TO LET BOOMS OVER LAST DECADE

Over the last ten years, buy-to-let has taken the UK property market by storm. According to the Council of Mortgage Lenders, it now represents approximately 10% of the UK residential housing market having grown from virtually nothing since 1997.

By the end of 2006, there were 850,000 buy-to-let mortgages outstanding, worth £94.8 billion, from only 28,700 less than ten years ago, representing nearly a 30 fold increase.

As a whole the UK property market has seen an unprecedented boom over the last decade with property prices in most areas of the UK increasing by 200%.

Low interest rates have played a key role in boosting the market to its current highs. Interest rates were 6% in 1997, having fallen from a high of 15% in 1989 and over the course of Tony Blair’s premiership fell to a record low of 3.5% in 2003. This improved affordability and encouraged homeowners and investors to spend more and lenders to offer larger loans.

The buy-to-let market was further aided by the removal of restrictions to the Assured Shorthold Tenancy agreement (AST) in the early days of the Labour administration. Making lettings easier and signalling to the market that the Government was not going to bring back the rent controls abandoned by the Tories.

However, the UK still has one of the smallest private rented sectors amongst the world’s industrialised nations, with the US having 32% of the residential market in rented housing and Germany a staggering 48%.

Stuart Law, Managing Director of property investment specialist Assetz comments on the performance of property versus the stock market during the Blair era:

“Property has massively outperformed the stock market over the Blair years, generating huge returns for UK investors. With no gearing, property is up 186% from 1994 to end of 2006, while the stock market (FTSE 100) is up just 103% over the same period.

“If property was purchased with a 15% deposit, then the results are stunning. Property has returned 1241% capital growth - 12.4 times your money as profit, while shares are up just 103% - twice your money.

“Looking forward, I would expect ungeared property to roughly equal the stock market, but with less volatility. Over the next ten years the stock market is likely to be up around 115% (8% per annum), whereas ungeared property will be around the same in the region of 8% per annum.

“However, geared buy to let investment is set to massively outperform equities again, but we are likely to see greater fluctuations in the short term. Geared buy-to-let property bought today with a 15% deposit and 85% loan would return 7.7 times the original cash deposit investment as profit (773% profit) on the basis of 8% growth per annum.

Mr Law continued: “Property would only have to rise by 1.6% a year over the next 10 years to produce the same returns as equities before costs – something most investors think is very likely, given the supply and demand imbalance of housing in the UK today and for the foreseeable future.”

“Property investment with large borrowings carries greater short term risk than just buying equities with no borrowings. However, in the long term investors are comfortable that in prime locations in the UK, there is a limit on new development and therefore there is only one way for prices to go over the next ten to 20 years.

”As long as investors take this long term view and do not over-extend themselves, they should do very well in years to come.”

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UK HOUSE PRICES STILL SOARING

House price inflation picked up for a second straight month in April, according to the Royal Institution of Chartered Surveyors. That was despite a fall in demand from home buyers and an increase in property on the market, says the RICS' report.

Nearly 30% more of its members reported a rise in prices than a fall during the month, up from 26.9% in March. House prices have now risen for 18 consecutive months, with hikes driven primarily by renewed momentum in London, the South East and East Anglia.

The pace of increase remains above the long run average of 21.6%, in an indication that the property market remains in robust health. New instructions to sell property rose in April in advance of the introduction of Home Information Packs, the RICS said.

"Last week's interest rate hike may not be the last as the housing market has not slowed as quickly as expected given the initial round of rate rises," said the RICS's Ian Perry.

With prices buoyant and conditions still tight another rate rise later in the summer looks likely."

The survey did, however, suggest that demand could be weakening, with new buyer enquiries declining for the fifth consecutive month and at a faster pace. Surveyors reported an increase in the number of sellers listing their properties early in order to avoid the upfront cost of the packs.

"The fear of paying the upfront buying costs of HIPs has pushed more property onto the market. This will continue throughout May but conditions should tighten if HIPs goes ahead on June 1 as sellers withdraw from the market."

The rise in house prices has coincided with the UK's rate of inflation slowing after energy bills were cut, official figures have shown. Consumer price inflation fell to 2.8% last month, against 3.1% in March, the Office for National Statistics said.

The Retail Prices Index, an inflation measure often used in pay bargaining, fell to 4.5% in April from 4.8%. Last week, the Bank of England raised UK interest rates by a quarter of a percentage point to 5.5% - the highest level in six years.

Many analysts are predicting that rates will climb by another quarter point despite the slowdown in price growth.