4 things that will affect the UK property market over the next five years

Predicting the future of the UK property market is no easy task, but new research from Savills looks at some of the key factors likely to influence the industry.

Over the next five years, home prices in the mainstream market are expected to increase by an average of 13.1%. The highest increases will be seen in the North of England, where the housing market and business and economic prospects are booming.

But there are certain events and trend changes in particular that the real estate agent Savills thinks to tip the scales in the UK property sector.

Interest Rates and Regulations Affecting Mortgages

Savills thinks the rapid rise in house prices we’ve seen over the past year and a half will slow down. And while the inevitable interest rate hikes will affect the mortgage market, they will rise slowly enough not to put “household finances under undue pressure.”

In terms of regulation, the Bank of England has proposed to relax the rules for affordability stress tests, which could make it easier to borrow. However, there is still a requirement that no more than 15% of a bank’s loans can be at a loan to income ratio of 4.5 or higher. Savills thinks it could also limit house price growth in the UK property market.

He adds: “This will further stress income returns for residential investors, tempering demand from mortgage owners to let. The effect will be greater in the London and South markets, where yields and prospects for future capital growth are lower.

Choice of location after the pandemic

How and where people want to live has certainly been affected by the pandemic. Landlords and renters are now more likely to want dedicated work space, as well as more outdoor space.

Savills expects demand for family homes to focus more on the suburban belt and its fringes “as hybrid working models become more established”.

He adds: “However, even if people travel further but less often, the quality of that journey will still be important. Not only will it concentrate demand for family homes in areas with good transport infrastructure, but it also looks set to create a spin-off market for inner-city boltholes.

But the agent doesn’t think that means the end of inner-city living; maybe just a change of who wants to live there.

Environmental issues in the foreground

Thanks to the influence of COP26, and with a renewed resolve from the government, the rise of zero-carbon homes could be a real game-changer in the years to come for the UK property market.

It is important to note that this campaign could have a significant impact on private owners, in particular with the evolution of EPC regulations. Savills thinks some will reconsider any investment property they own that is less energy efficient. In turn, this could push demand towards more modern homes.

The rental construction sector in particular could benefit from this. Savills adds: “It plays more into the hands of institutions, for whom it will be easier to meet minimum EPC requirements on purpose-built inventory, but who also have economies of scale to deal with issues. inherited on large portfolios.”

Big changes for developers

Savills notes: “The mini property boom has left homebuilders with healthy balance sheets and capital to deploy, leading to near-term upward pressure on land values. But with reduced price growth forecasts and high construction cost inflation, the outlook is less clear.

The purchase assistance scheme is due to end in 2022, which will create a vacuum as it has supported housing construction since 2013. This could be filled by a “wider and more diverse build-to-rent sector”. , says Savills, which seems like a very safe market for developers.

The future of housing policy remains uncertain, however, with the government regularly changing housing ministers. With the current turbulence around the Conservative managementthe uncertainty is not expected to be resolved any time soon.

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Penny D. Jackson