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About UK In March 2008, a flat in central London sold for a price generally believed the most expensive apartment the world, with a sale price exceeding £115m. The off-plan apartment was in St James’s Square, equidistant from 10 Downing Street and Buckingham Palace.
Nevertheless, UK house prices are softening. After many false alarms, the long-lasting boom seems over. Exotic headlines about highly priced London residences seem emblematic now of past excesses, not the expected future. UK house prices fell by 2.5% nationally in March, the biggest monthly decline since September 1992. House prices were still 1.1% up on the year. The upside – rising rental yields Despite the distinctly ‘end of cycle’ feeling, there are areas of light. Average rental incomes increased 16.7% over the past year. Terraced houses generate the highest rental returns (6.8%), followed by detached (6.5%), semi-detached (6.3%) and flats (5.5%). The Association of Residential Letting Agents (ARLA) finds average returns for both rented houses and flats to be lower, at around 5%, with London having the highest gross rental yields, at 5.2%. For the last three months the proportion of ARLA members saying that they have more tenants than properties has been at its third highest level since quarterly ARLA surveys began nearly six years ago. Increased demand is being driven in part by immigration. Across the country, the average proportion of properties taken by immigrants through ARLA members is 20%. More than 16% of these are from the European Union. The UK continues to suck in immigrants and has an extremely tight labour market. In addition the economy remains strong. Retail sales in the year to February rose by a stronger-than-expected 5.5 per cent. Note also that mortgage payments in London are relatively low as a percentage of take home pay (110%), compared to some other areas of the UK, including N. Ireland (218%), and the West Midlands (146.7%). Housing shortage UK house prices have been continually on the rise since 1995. From Q4 1995 to 2008, average UK house prices have risen from £50,930 to £179,363. This is an overwhelming 252% increase in nominal terms. UK house-building has largely failed to respond to booming house prices for the past decade, largely because of building regulations. Increases in population, immigration, and decreases in unemployment, have all added to the pressure, as have changes in household sizes. In conclusion, constraints on new supply (planning controls), and the current low interest rate environment, do seem to have increased the long-term equilibrium price of housing in the UK.This means that the UK market may be different from that of the U.S., where there are serious regulation-induced supply constraints. The next 6 to 12 months will see many investors taking advantage of the falling prices and capitalise on the rental market demand. | |||||||||||||||||||||
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