It is hard to remember a time when Brexit was not the main focus of any news about property. Whether it is construction, house prices or sales, the fallout from the referendum on EU membership is predicted to have an effect on everything. However, what if Brexit wasn’t the main factor which is going to drive the housing market over the next five years?
That’s not to say that Brexit hasn’t had an impact. Savills predicted towards the end of 2018 that the political uncertainty would keep house sales relatively low until at least 2023. Agents have reported a drop in sales volumes of 6.9% since the referendum occurred, and Savills is confident that this will remain the case for a few years yet. Another way of looking at this is to say that transactions will be stable through the biggest political crisis of a generation – which is far more reassuring.
So, if we are looking at a period of stability amongst the supposed chaos, what is going to be the main driving factor pushing the market onwards. After all, no one is seriously predicting the market will shrink, so if transactions are not doing the business then what will?
In the same report, Savills anticipated that affordability will be the key factor in the next five years, and that this is going to have some interesting effects on the market.
UK house prices are expected to rise on average in line with inflation – approximately 14.8% by 2023 – but the growth will not be spread evenly. London has been the dominant player in the housing market for decades, but the capital is only predicted to see single-digit growth of 4.5% over the specified time period. Likewise, other traditionally strong markets will be limited to the same; the South East and East are both predicted to see five-year growth of 9.3%.
In contrast, all of the big action which should interest buy to let investors is going to happen elsewhere. The big winners are the North West (21.6%), Yorkshire and Humberside (20.5%), the East and West Midlands (both 19.3%) and the North East (17.6%). Not only are all of these growth predictions far in excess of London, they are a lot higher than the anticipated inflation rate.
It is clear where those looking to expand their property investment portfolios should look.
Since the report was released in Q4 2018, events have confirmed that Savills seem to be on the right track. The latest Hometrack House Price Index shows annual house price growth of 5.8% in Manchester, 5.3% in Liverpool and 4.4% in Sheffield. Compare that to growth of 0.4% over the same period in London and you can see why Savills is so confident in its predictions.
All of this makes perfect sense – if there is no value in a market then people won’t buy there. London has been overpriced for a long time, so can investors really be blamed for looking elsewhere?