With almost all Covid-19 restrictions removed, we look at the performance of the UK property market across the first quarter of the year and the emerging trends that will shape the sector in Q2 2022 and beyond.
UK property values hit an all-time high
Across the residential market, the start of 2022 painted a positive picture for investors, with average UK property values up by 11.2% in the year to January, marking the strongest start to the year for 17 years, according to Nationwide.
However, it’s not just property values that kick-started the year breaking records. OnTheMarket has shown that 48% of residential property was sold subject to contract within 30 days of being advertised in January. Compared with 36% recorded in January 2021, it is clear that buyer demand for property is fuelling rising values.
Due to the solid start to the year, many experts predicted that the market would seasonally adjust in February. However, that was not the case.
Halifax reported the most substantial market growth since June 2007 in February, with average values increasing by 10.8% year-on-year. February also marked the eighth consecutive month of house price growth across the UK.
In monetary terms, UK properties have increased in value by an average of £27,215, marking the highest recorded one-year cash rise in over 39 years, the Halifax House Price Index reported.
As we enter Q2, the demand for property continues to fuel further house price growth. According to JLL, property values are set to increase by an average of 4% per annum between 2022 and 2026. Based on JJL’s forecast, those entering the market today could see the value of their property climb by 22% over the next five years.
Return to city living fuelling rental growth
With Covid-19 restrictions lifting across Great Britain, the welcome return of workers, tourists, students, and new residents has seen towns and cities experience a bounce-back.
According to Zoopla, an influx of people returning to city centres saw rents climb at their fastest rate in 2021, with annual rental growth across the UK for new lets increasing by 8.3%.
This trend continued throughout the first quarter of the year, with Rightmove reporting rents rising at the fastest rate on record, with tenant demand 32% higher at the start of 2022 when compared to the previous year. With the number of available properties 51% lower than last year, the gap between supply and demand continues to push rents up at a record pace.
Investors who wish to capitalise on tenant demand are likely to secure the best return on investment by selecting property markets with an undersupply of high-quality rental stock in a desirable and central location.
Data published by JLL has shown that rental growth across the private sector will increase by an average of 2.4% per annum over the next five years, with markets such as Manchester, Bristol, Edinburgh and London expected to perform at a higher rate of 3% p.a.
Photo credit: Manchester Evening News
Will interest rates increase?
As we entered 2022, interest rates were set at 0.25%, having increased from 0.1% in December in a bid by the Bank of England to ease inflation.
In March, a further increase was introduced by the Bank of England, with interest rates sitting at 0.75% as the first quarter of the year concluded.
Despite two consecutive increases, property investors should note that interest rates are now back to pre-pandemic levels and, historically speaking, remain at a record low.
The potential for interest rates to increase should always be a factor incorporated into a property portfolio funded through borrowing.
Those with an eye on the future will be pleased to know that most forecasts agree that although interest rates are likely to increase over the coming years, any rises will be implemented slowly. For example, the latest Savills forecast suggests rates may reach 1.5% by 2026.
Low interest rates are an attractive incentive for Buy-to-Let investors entering the UK property market. Even if the BoE increases the rate in small increments, the mortgage market will remain affordable for those who wish to fund their property investment through borrowing.
What’s driving growth?
The introduction of a Stamp Duty holiday throughout the pandemic and low interest rates helped the property market remain resilient during uncertainty.
With Stamp Duty fully reinstated and interest rates back to pre-Covid levels, homeowners and investors continue to move forward with their property purchases.
According to Halifax, transaction volumes were considerably higher at the start of 2022 than usual, with almost 107,000 UK residential property transactions in January. When compared with an average of 98,000 per month in 2019, it is clear that buyer confidence remains strong across the UK property market, despite the removal of previous incentives.
And, with a number of prospective buyers in the UK in the last two months of 2021 63% higher than the average recorded between 2015 and 2019, purchaser demand is showing no signs of slowing down.
Supply unable to keep up with demand
The latest forecasts show a shortfall of 500,000 homes out of the 1.5 million new homes required in the next five years (JLL).
According to Energy Performance Certificate (EPC) data, 243,775 new homes were built in England in 2021. However, despite high levels of completions, the figure remains significantly below the government’s target of 300,000 new homes per annum.
Even though the Build to Rent (BtR) sector has been making waves over the last few years to ease housing supply, considerable investment is still required to meet demand. Throughout 2021, the number of starts and completions increased by 24% across the BtR market.
For those considering investing in Buy-to-Let property, Build to Rent is one of the most appealing options on the market. JLL estimates this market segment could reach £20 billion per annum in transactions – over three times its current level.
With demand at its highest in city centres, investors intent on entering the BtR market should consider central developments in one of the UK’s Core Cities.
Manchester retains property hotspot status
There are many factors to consider when it comes to selecting where to invest in property in 2022. Manchester is widely considered the UK’s best-performing property market, and given its current performance, it is difficult to dispute its hotspot status.
The latest UK Residential Forecasts from JLL revealed that Manchester will outperform almost all regional and national cities over the next five years, with property values expected to rise by 23.5% between 2022 and 2026. In addition, Buy-to-Let investments located in Manchester are set to see yields climb over the same period, with rental values on track to increase by an average of 15%.
Over the past two years, the UK property market has proven its resilience and strength, recording steady house price growth and rising yields. If you are considering investing in 2022, contact our experts, who will provide professional guidance and advice on the best places to invest in property.