UK property prices

UK property prices are scruntised more than the prices of any other real estate asset in the world.

Domestically, they are intrinsically linked to the overall wealth of the nation and the national economy, while overseas many investors have been, and remain, keen to add UK property to their portfolios.

Current UK property prices

According to the latest figures from the Office for National Statistics, the average house price in the UK increased by 10.8% over the year to December 2021, which is it’s a 0.1 percentage point rise from the 12 months to November 2021.

This means that hedging in 2020, the average UK property price is £275,000, which means that asset holders have enjoyed about a £27,000 increase in capital values over the 12-month period.

A national breakdown of the figures shows the average price and 12-month increases within the 4 nations of the UK to be:

  • England: £293,000 (10.7%)
  • Wales: £205,000 (13.0%)
  • Scotland: £180,000 (11.2%)
  • Northern Ireland: £159,000 (10.7%)

Of course, many further regional variations exist within the UK market, and some of the more prominent ones are detailed here

  • London
  • Manchester 

However, assessing the regions on a top-level basis shows 2021 recorded strong performance across the board.

* Source: HM Land Registry and Office for National Statistics – UK House Price Index

Perhaps reflecting the widespread race for space that happened during the pandemic, the rural South West was the British region with the highest annual house price growth. Investors recorded capital appreciation of 13.6% over the year.

London’s position at the bottom of this chart is also reflective of the artificial trends of the pandemic, and also the existing high entry point into the market the city has. London’s average house prices remain the most expensive of any region (or city) in the UK and in December 2021, average asking prices in the capital hit a record level of £521,000.

Post pandemic future of UK property prices

The UK is widely viewed to be the first western country to emerge from the pandemic and although inflation has increased and GDP estimates are being revised, the housing market looks relatively unscathed.

Property price data in the immediate aftermath is somewhat distorted because of the impact COVID-19 had on both the number and supply of housing transactions as demand was at first pent-up and then released. Further artificial noise was added by the introduction of a Stamp Duty holiday too.

However, a solid 6 months have now passed and long-term trends have come to the fore once more.

* Source: HM Land Registry, Registers of Scotland, Land and Property Services Northern Ireland, Office for National Statistics – UK House Price Index

During the pandemic, many domestic purchases involved people moving out of urban areas into more suburban and rural settings as there was little need to be within a close-distance commute of CBDs and other service industry workplaces. 

Now that life within the UK is returning to normal, working habits are shifting once more. Yes, the need to live near work is no longer as important as it was post-pandemic, but many employers are adopting a hybrid system of working that does require employees to at least be present in offices and workplaces a few days a week.

Furthermore, there is the question of demographic. As they look to establish themselves and their career, younger, less experienced workers are more likely to want to be closer to the office than older workers, who are more likely to remain in their newly acquired rural locales.

The pandemic then has affected the market in 2 main ways. Firstly, vast swathes of prime city-centre property are undervalued, as suburban and rural prices rose. Secondly, residents place greater emphasis on high-speed internet connection – making new build properties more favourable.

It is for the above 2 reasons many investors are keen to acquire city centre apartments in major cities within the next 12 to 18 months ahead of a forecasted full price correction.

What is the housing market and what are UK property prices important?

In Great Britain, two-thirds of households own the house they live in, and although around half of these are mortgage holders, this proportion is higher than most other countries.

Property prices and the housing market are important to the economy for many reasons, namely due to their link to debt and consumer spending.

Simplistically, as property prices in the UK rise, homeowners feel they are wealthier and become more confident in their financial position. When this happens they are more likely to spend, driving the rest of the economy. This is sometimes referred to as the Wealth Effect.

Equally, the reverse is also true. If houses prices in the UK were to fall, people would become less confident in their financial position and more frugal. Furthermore, if house prices fall too much negative equity also becomes a problem and, as mortgages are the largest single source of UK household debt the whole banking system becomes under strain.

It is fairly easy to see then, that it is firmly in government interest to keep house prices rising in a stable and sustainable manner in the UK, and successive governments have constantly tried to balance house price rises while ensuring a new influx of first-time buyers can afford to get on the housing ladder.

Why do house prices in the UK change?

Largely for the same reasons any asset changes value over time: supply and demand although to a greater extent. 

For context, back in the late 1970s, the average UK property price was around £10,000. Now, as mentioned, this is somewhere around the £270,000 mark. Of course, everything has increased in price over the past 50 years, but UK house prices have increased in value at a rate at least 3 times that of other goods and services.

Over that time the population in the UK has not only increased dramatically in real terms, from about 55m to 67m people, but the average size of a British household has dropped from 3.3 to 2.4 people. In short, the UK has needed a lot more residential properties.

Growing demand for any asset results in sellers being able to ask for more and, as a result, would mean higher house prices. During the same period, the supply of housing has failed to keep up with this demand.

Away from supply and demand, the other main reason underpinning the sustained growth of UK property prices has been the access to cheap credit. Ever since the global economic downturn in 2007/8, interest rates in the UK have hovered around record lows. In the UK, this rate is controlled by The Bank of England. Over the past decade, low rates have led to low mortgage rates and helped people lend to buy. Now, however, rates are rising in the UK for the first time in a long time following Covid and Brexit – possibly favouring cash buyers and investors.

UK property prices and overseas investment

Almost 250,000 residential properties across England and Wales are now registered to overseas individuals. This corresponds to about 1% of residential titles and has increased significantly since 2010 when the figure stood at 0.4%.

Of course, the investment strength of UK property is the main factory in this upturn but wider macroeconomic factors have played their part too. 

A big factor has been the post Brexit forex window that has seen UK property become cheaper to USD buyers. This window appeared to be closing for much of 2020, but as we enter 2022, again the dollar is rising on the pound and significant savings may be on offer.

Where in the UK is good for property investment?

Most real estate assets across the UK would probably offer mid to long-term value right now – especially if you plan to ket your asset and achieve regular tenancy and minimise void periods. Less experienced investors may lean on the expertise of agents to help them uncover these opportunities in what is set to be a competitive market.

That said, it is widely accepted that in the medium to long-term, tier-one regional markets such as Manchester and Birmingham currently offer investors the biggest ROI prospects combining both capital appreciation and regularly yields.

UK property for sale

As longstanding experts in UK property investment, Chestertons not only has an intricate understanding of what makes a successful acquisition but actively source these opportunities to make investment easier for those overseas.

We currently have properties for sale in the UK in the most prized markets of London as well as Manchester and Birmingham. Should you be interested in adding UK property to your portfolio, please get in touch and we can discuss your needs and requirements.

Information sources: / I Love Manchester / Alliance

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