Since many years, I invest in the UK residential real estate for many reasons including the chronic supply issue as the current homebuilding is covering only two third of the target set by the government, high rental yield particularly in cities like Liverpool, Manchester and Leeds, low-interest rate and the possibility for global investors to obtain mortgage, find property managers, surveyors, solicitors and accountants needed for purchasing and ongoing management of their properties.
In the hometrack.com May 2019 update, the overall UK house price increased 1.8% vs. last year but the growth rate continues to lose momentum due to Brexit uncertainty. However, the growth rate ranges from a high of 5% in Liverpool to -4% in Aberdeen. My preferred cities; Manchester, Birmingham and Leeds are growing at 4.3%, 4% and 3.4% respectively. London and Cambridge residential values continue to fall. The summary of this report is as follows:
1- Purchase affordability:Income needed to buy a property decreased in the 3 most expensive cities; London, Oxford and Cambridge as a result of a small fall in prices and a 0.5% decline in average mortgage rates since 2016. The income to buy has increased across all other cities since 2016 by as much as 20% in Leicester and 19% in Manchester. This is a result of above average house price inflation over the last 3 years.
2- Higher prices result in fewer buyers: There is a clear link between the income to buy and recent developments in house price inflation. In simple terms, the higher prices rise, the greater the income to buy and this reduces the number of potential buyers. The net result is weaker demand, fewer sales, lower price growth and, in some areas, price falls.
3- Mortgage regulations cap buying power: Low mortgage rates and new mortgage regulations introduced in the wake of the global financial crisis are capping buyer power and re-enforcing these trends. Over the last 23 years city house prices have increased at an annual average rate of 7%, well ahead of the growth in incomes. This out-performance is largely a result of lower mortgage rates which averaged 5.5% for first time buyers between 1996 and 2007 and are now 2.4%. The boosting effect of lower mortgage rates on house prices has largely run its course.
Furthermore, mortgage affordability tests and loan to income limits are also capping buying power. This has the greatest impact in high value markets and forces households to inject increasing amounts of equity to fund purchases. This further restricts the number of households that can buy. It is one reason Help to Buy has been an attractive product for new home buyers.
In Wealth Heights’ coaching program, we help our clients to purchase properties in the hot areas of UK focusing mainly on Manchester, Liverpool, Leeds and Birmingham where yields and growth tend to be higher than the average of UK. We support them with trusted sourcing agents, property managers, solicitors, surveyors and accountants for tax return to ensure a very smooth process. If you are interested in investing in the very profitable UK Real Estate market, click here and book your coaching course.
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