By Steven Taylor 4th February 2020
The UK property market received a boost in January, as demand rose at a rapid pace and prices grew at their fastest pace since 2017, according to the new UK Cities Price Index by Zoopla.
Demand grew 26 per cent in the December 2019 to January 2020 period, as compared to the same four weeks in 2018-19. Prices grew at an annual rate of 3.9 per cent, a rate of growth not seen since September 2017, as buyers showed an increased appetite to buy.
The Christmas and New Year period is often marked by buyers starting to search for new homes, but Zoopla believed the significant rise in demand seen in early 2020 was higher than usually expected at this time.
Every UK city, except Belfast, registered a rise in buyer demand in the weeks around the Christmas and New Year period.
Scotland saw some of the fastest price growth in the index, with prices in Edinburgh rising 6.1 per cent on an annual basis. Despite this, Aberdeen was one of the greatest underperformers, with prices falling 3.1 per cent.
Zoopla believed the housing market in Aberdeen was being hampered by weak oil prices, and the knock-on effect this had on the oil extraction sector in the local economy. As a result, the average home in Aberdeen was worth £155,700, offering one of the cheapest prices in the UK.
London remained the most expensive city in the UK, with homes worth £480,000 on average. Despite high valuations, price growth in the capital was 1.9 per cent, as places experiencing stretched affordability started to adjust to meet buyer demand and budgets.
Zoopla expected UK cities, particularly in the Midlands and the North, would lead price growth in 2020, as homes remained cheaper in those areas than in London.
Richard Donnell, research and insight director at Zoopla, explained: “The cities with more affordable house prices, such as Sheffield and Leeds, have seen the greatest increase in buyer demand as house hunters continue to focus on value for money this year.”
Zoopla expected house prices to rise by an average of three per cent across all UK cities in 2020, bolstered by stronger economic growth and increasing affordability for prospective buyers. This comes after something of a pre-Brexit price slowdown in recent years, which kept price growth weak as each original Brexit deadline came and went.
The Bank of England’s decision to keep interest rates at 0.75 per cent last week could do much to keep the housing market ticking over, as the cost of borrowing remains close to zero and real wages continue to rise.
With inflation proving weaker than expected and wages outpacing house price growth, buyers find themselves in a virtuous circle of increased housing affordability.
In the meantime, low interest rates help keep mortgage rates low, encouraging people to start climbing the housing ladder, with a wider range of potential homes to choose from.
Correction: the article originally referred to Dublin, while discussing house price data from Zoopla on UK cities. In actual fact, the city in question was Belfast.
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If we are at (or approaching) the peak of the economic cycle does it still make sense to invest in the London property market now?
Yes it does, because:
- It is impossible to time markets
- There is no such thing as "the property market" ... the market is comprised of a series of "micro climates" eg affordable housing, prime luxury real estate, etc
- We focus almost exclusively on AFFORDABLE HOUSING in centres of high employment, experiencing urban regeneration, with good/ improving transport links.
- This segment of the housing market continues to experience robust demand and a chronic supply-demand imbalance
- And therefore provides consistently high returns on investment, especially on a "risk adjusted" basis, and compared to most available investment alternatives
- While interest rates remain at historical lows.
Has the housing market been adversely affected by Brexit uncertainty?
- Yes it has.
- Markets are invariably "spooked" by uncertainty.
- As such, a disproportionate percentage of property sales today could be described as "distressed sales". Nobody chooses to sell in an impaired market. They usually prefer to wait for uncertainty to abate.
- Which presents an unprecedented buying opportunity for investors with access to cost-effective secured finance.
- House prices in centres of high-employment are likely to rebound strongly as the dust settles on a "Brexit deal" with the European Union.
- As long as unemployment rates remain low (currently at 3% in London and the Southeast)