Three years on from the EU membership referendum, in which just over half of the UK population voted to leave the European Union, the country is not much closer to knowing the exact details of Brexit.
Outgoing prime minister Theresa May’s proposed withdrawal agreement was rejected by parliament three times, increasing the likelihood that Britain will either have to attempt to push back the scheduled withdrawal date of October 31st so the deal can be renegotiated, or leave on that date with no deal at all.
There’s no denying the uncertainty Brexit has caused for British citizens, businesses and the economy. It has been a tumultuous time, but as far as the property market is concerned, it has also been a time of opportunity, particularly for investors from overseas and those focusing on niche sectors such as student accommodation.
Here, we Experience Invest looks at some of the most significant trends in UK property over the last three years.
The most recent data on house prices has offered some encouraging trends for investors prioritising capital growth. Halifax published figures showing that, during the three months from March to May 2019, house prices were 2.5 per cent higher than in the preceding quarter, and 5.2 per cent up from the same period a year earlier.
Russell Galley, the bank’s managing director, said “the overall message is one of stability”, with the twin pillars of high employment and low interest rates continuing to prop up the housing market.
According to Nationwide, the average UK house price was £212,694 in the first quarter of 2019, up from £205,937 in the final quarter of 2016.
Some of the most significant house price trends over the past three years have been regional, with the market’s traditional north-south divide being turned on its head. Liverpool and London, for example, have had contrasting fortunes, with the north-western city regularly witnessing year-on-year price growth above four per cent since the second half of 2017, while the capital has frequently slipped into negative figures, according to the Hometrack UK Cities House Price Index.
Data for April 2019 showed year-on-year growth of 4.9 per cent in Liverpool and a 0.5 per cent decline in London.
The low interest rate environment is one of the most encouraging aspects of the UK property market at the moment for investors.
Interest rates have been historically low since the drastic altering of monetary policy during the financial crisis, when the Bank of England’s base rate plunged from five per cent in September 2008 to 0.5 per cent by April 2009.
The rate was at an all-time low of 0.25 per cent between August 2016 and November 2017, with two gradual increases since then bringing it to its current level of 0.75 per cent. This means that, historically speaking, borrowing is cheap for those buying property in the UK at the moment.
While there is clear scope for interest rates to increase in the future, buy-to-let mortgage borrowers who move quickly can access some good deals.
As David Hollingworth of L&C Mortgages told BBC News: “Right now, you’ve got lenders that want your business and rates are exceptionally low.”
Exchange rates and foreign investment
Fluctuations in exchange rates are particularly significant for international investors planning to enter the UK property market. The general uncertainty caused by Brexit and other economic factors has had a clear impact on the value of the British pound over the last three years, largely to the benefit of overseas buyers.
Against the euro, for example, the pound has fallen from a value of €1.31 in June 2016 to €1.12 in June 2019, a decline of 14 per cent. Over the same three-year period, sterling has experienced similar losses in value against the US dollar (down from $1.48 to $1.26), the Hong Kong dollar (down from HK$11.5 to HK$9.9) and the Emirati dirham (down from AED5.5 to AED4.6).
These are positive trends for international buyers who want to get maximum value for their money, and recent developments suggest investors are making the most of the current situation.
In December 2018, the Department for International Trade announced that overseas investment in the UK had reached its highest ever level. Between 2016 and 2017, the value of foreign investments in Britain increased by £149 billion.
The private rented sector
Barriers to home ownership in the UK – most notably affordability constraints and the difficulties many people face in saving for a mortgage deposit – have persisted over the last three years. Consequently, the private rented sector is proving more important than ever in meeting rising demand for living space, particularly in popular towns and cities.
Recent research from CBRE showed that both the private rented sector and the build-to-rent market – which delivers homes specifically for private tenants – had made a strong start to 2019. Institutional investment in private rental property reached £1.04 billion in the first quarter, marking a fourfold year-on-year increase.
Hamish Simmie, research analyst at Savills, pointed out that the build-to-rent segment is gaining more confidence from investors and schemes are getting larger.
As far as rental yields – one of the key success metrics for any buy-to-let property investor – are concerned, data from the Office for National Statistics has shown that private housing rental prices have stayed comfortably in positive growth territory over the last three years.
According to the latest Homelet Rental Index, average rents across the UK increased by two per cent in April 2019.
The thriving student segment
Investors looking beyond the mainstream property market can find some particularly exciting opportunities in alternative asset classes, one of the most promising of which is purpose-built student accommodation.
This segment has experienced significant growth and development in recent years, leading Savills to suggest that it should no longer even be viewed as an alternative option, but rather as a mainstream investment.
Overall growth in the student accommodation sector is being fuelled by a number of positive trends, including the enduring appeal of UK higher education institutions around the world.
Data published by UCAS in February 2019 suggested that Brexit had not dented the desire of international students to attend British colleges and universities. Applicant numbers from the European Union increased by one per cent to 43,890, while overseas applications from outside the EU rose by nine per cent to a record high of 63,690.
Total university applications increased for the first time in three years, reassuring investors that there is sufficient demand for student accommodation to deliver reliable rental yields.
There are also promising signs on the development front, with Knight Frank noting that the student property construction pipeline is strong, despite wider uncertainty.
‘Bedrock of the economy’
The performance of purpose-built student accommodation – and UK property as a whole – in the past three years underlines the resilience of the market and suggests there will be many more opportunities for investors to secure strong returns in the years to come.
As Jerald Solis, business development and acquisitions director at Experience Invest, noted: “Over the last 36 months, domestic and foreign investors have continued to look to property in order to benefit from its long-term capital growth. Indeed, prices across the country have continued to rise steadily, and while the London market has stuttered somewhat, other regions have gone from strength-to-strength.
“At Experience Invest we have continued to support private investment into new-build developments in some of the fastest-rising cities across the UK, such as Luton, Liverpool and Newcastle.
“Looking to the future, what we now need from Westminster is more effective management of Brexit, providing a solid indication of what the future will hold. In turn, this will allow property developers, renters, homeowners and investors to take full advantage of the opportunities on offer and ensure the real estate sector remains a bedrock of the UK economy.”
For more insights into how to make the most of trends and opportunities at this unique time, download Experience Invest’s guide: Understanding Property Investment in a Post-Brexit World.