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UK property - Look beyond London

For the first time since the depths of the global financial crisis in 2009, the increase in London house prices is likely to lag behind the rest of the UK, rather than leading from the front, according to think tank the Centre for Economic and Business Research.

New buyer enquiries and the pace of sales have declined in the capital, while prices are likely to slip by 3.5% in 2015, after surging since the global financial crisis1.

In contrast, areas outside London are expected to finally start catching up. Residential property market specialists Hometrack found that house prices rose faster in major regional cities than in central London in March, the first time this has happened since 20052.

There are plenty of other reasons for investors to look further afield, not least the capital’s high prices and intense competition for properties. The average house price in London is £475,000, compared to £178,000 for England and Wales3.

Little wonder, then, that regional cities in the UK have moved into the spotlight recently. According to Hamptons International, people moving out of London bought 58,000 homes last year, 50% more than in 20134. Meanwhile, foreign real estate investors, notably sovereign wealth funds and pension funds from Asia and North America, are increasingly keen on reasonably priced regional cities.

So where should investors be looking for the best returns in the future? We’ve collated the most interesting ideas, based on the opinions of property experts and most recent analysis of the market.

Just remember that, like any asset, the value of property can fall as well as rise. It may be worth less in the future than you paid for it at the outset. If you use a buy-to-let mortgage to purchase a property, remember that your property may be repossessed or a receiver of rent appointed if you do not keep up repayments.

Birmingham attracts investors

Britain’s second largest city is attractive to overseas investors for several reasons. The wider economic recovery has reached the regions, with 19,000 businesses created in Birmingham over the past year, second only to London5.

Birmingham’s mix of regeneration, re-development and job creation, as well as the relatively lower entry price for property, means that its draw to homebuyers and investors will likely continue to grow in the coming years
Grainne Gilmore, Head of UK Residential Research at Knight Frank

Much of the momentum is due to extensive regeneration work over the last decade, including the redevelopment of the central shopping area known as the Bullring. This has boosted shopping space and secured premium retailers such as Selfridges, the luxury department store.

Major infrastructure projects are another important element of the city’s transformation. Britain’s high-speed railway project, HS2, will bring the city within 50 minutes of London. The airport is adding another runway to expand its long-haul network. Such is the buzz that Birmingham was voted one of the world’s top 10 cities in a recent poll carried out by the guidebook publisher Rough Guide 6.

The average sale price in the city has just eclipsed the 2007 peak of £167,6077. One local hotspot is the Jewellery Quarter, the former jewellery-making area that’s being regenerated close to the city centre.

Recent price rises in the area have easily outpaced the city average of 4.5% over the past year8. Philip Jackson, director of the local Maguire Jackson estate agency, has described the district as “a classic city fringe village” similar to Clerkenwell in London. A high-end two-bedroom apartment in the area is on the market for around £270,0009; a penthouse apartment is going for £355,00010.

The outlook is encouraging. “Birmingham’s mix of regeneration, re-development and job creation, as well as the relatively lower entry price for property, means that its draw to homebuyers and investors will likely continue to grow in the coming years,” says Grainne Gilmore, Head of UK Residential Research at Knight Frank.

Dynamic Manchester and Liverpool

Birmingham house prices aren’t the only ones to benefit from renewed dynamism and the prospect of improved transport links. Manchester and Liverpool, two northern cities rebounding after years of decline, offer these too.

Ministers in Britain’s recently re-elected Conservative government are promoting the concept of a ‘Northern Powerhouse’. It will connect Britain’s northern cities, Manchester and Liverpool, along with Leeds and Sheffield. The idea is to challenge the dominance of London over the British economy, rectifying an imbalance that has lasted for decades. An east-west version of the high-speed rail line, known as HS3, could also improve connections between the urban centres.

The Northern Powerhouse concept is greatly enhancing the appeal of the northern cities. It will “take root in 2015 as investment and infrastructure plans are firmed up,” predicts Stuart Law of Assetz, a UK property investment company.

Manchester is attracting most of the attention. The city is now widely considered to be “one of the UK’s most modern and exciting places to live and work”, said Property Frontiers. Widespread regeneration continues, backed by major foreign investment. The Beijing Construction Engineering Group, for instance, is to join an £800m project to regenerate Manchester airport, marking one of China’s biggest investments in the UK outside London11.

House prices in Manchester have risen by around 3% on average in the past year, but the average cost is still only £108,63012. Average gross yields, meanwhile, are around 7.5%, almost twice London levels13. “Following a lack of development over the downturn, there’s a significant shortage of supply while demand is continuing to increase”, says Stephen Hogg, lead director of regional residential at the JLL property company. “The result is a renewed offplan market. It’s not uncommon for a quarter of a scheme’s properties to be sold four weeks after launching. In fact, some developments have come close to selling-out entirely before construction has finished.”

Map of the UK
Following a lack of development over the downturn, there’s a significant shortage of supply while demand is continuing to increase
Stephen Hogg, Lead director of regional residential at the JLL property company.

One of the city’s trendiest areas is the Northern Quarter a haven for music and fashion lovers in their twenties and thirties. A one-bedroom flat in Finlays Warehouse, which used to house the famous cabaret bar, Foo Foo’s Palace, recently sold for £135,00014.

But another area to consider is the Baltic Triangle in central Liverpool, known as Liverpool’s ‘meatpacking district’. Like its New York counterpart, a previously gritty industrial area has become a trendy, creative part of town full of graphic artists and filmmakers. The developers have moved in, but prices are hardly out of reach yet. They average around £150,00015.

Sudbury turns fashionable

Once a sleepy countryside retreat in rural Suffolk, Sudbury is gaining a reputation as a fashionable property hotspot.

...it is benefiting from the Cambridge effect
Tom Orford, A director at Savills

The picturesque market town, with a population of less than 15,000, might not be typical for a sought-after property destination. Still, house prices are “benefiting from the Cambridge effect”, says Tom Orford, a director at Savills. He says that property prices around Cambridge, home to the world-famous university, have been getting more expensive, encouraging people to look further afield. As a result, prices in Sudbury, and similar villages and towns in the area, are also to rise.

The commuter links to London have helped Sudbury too. City buyers have driven up prices for the area’s classic Georgian buildings. Sudbury saw seven sales of properties worth over £1m in 2014, up from just one the year before16.

Bristol is booming

The home of world-famous graffiti artist Banksy is becoming a property hotspot, thanks in part to a shortage of homes for its booming population. They are drawn to the city to study or work at its prestigious university, or for jobs in the booming aerospace and creative industries. “There is no supply and huge demand for property,” says Callum Garrett of local estate agency, C.J. Hole. That’s always good news for prices.

There is no supply and huge demand for property.
Callum Garrett, Local estate agency, C.J. Hole.

The upmarket suburb of Clifton has long attracted attention, but one area tipped to perform strongly in the coming years is Totterdown. It overlooks the river Avon in south-east Bristol. It’s attractive because of its good schools, proximity to the main railway station and the city centre, and rising number of independent shops. Young couples are heading to the area, which will also gain from a new indoor arena being built nearby. Two-bedroom Victorian terraces start at around £250,000.

Redcliffe, meanwhile, is another area of the city gaining a reputation as the next big property hotspot. Waterfront regeneration is attracting attention from first-time buyers, property investors, people wanting to downsize from bigger homes and parents looking for properties for their student children. Some of these will be in conversions of industrial buildings.

According to the Hamptons estate agency, sales volumes jumped by 93% in the area last year, the second highest increase in transactions of any region in the country17.

Bicester buzzes

Bicester, in Oxfordshire, is famous for the designer retail outlet on its outskirts. It is particularly popular among Chinese tourists – in previous years they have accounted for just over 40% of its total tax-refunded sales18 . But there’s a wide range of development and regeneration projects in the area that have the potential to keep bolstering property prices.

The government has chosen Bicester as one of its new garden cities, with 13,000 new homes being built on the edge of town19. There is already an eco-town – designed to be the country’s first zero-carbon settlement – with up to 6,000 homes in north-west Bicester20.
 

The town centre, rather neglected up to now, is also getting some attention, with a recent £70m retail development project21. A new rail link from Oxford to Marylebone will also help to entice new residents. Four-bedroom houses in a development project in the north of town cost around £400,000.

Just remember that, like any asset, the value of property can fall as well as rise, and it may be worth less in the future than you paid for it at the outset.

If you use a buy-to-let mortgage to purchase a property, remember that your property may be repossessed or a receiver of rent appointed if you do not keep up repayments.

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1 http://www.cebr.com/reports/house-price-forecast-revised-up/
2 https://www.hometrack.com/uk/about-us/press-room/march-2015-hometrack-uk-cities-house-price-index-figures-released/
3 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/430497/HPIReport20150511.pdf
4 http://www.hamptons.co.uk/news-research/press-releases/jan-15-2015/?utm_source=barclays.co.uk&utm_medium=referral&utm_campaign=pressrelease
5 http://www.centreforentrepreneurs.org/images/centreforentrepreneurs/NEW_FIGURES_REVEAL_RECORD_BREAKING_YEAR_FOR_START.pdf
6 http://www.roughguides.com/best-places/2015/top-10-cities/
7 http://content.knightfrank.com/research/634/documents/en/2015-2751.pdf
8 http://landregistry.data.gov.uk/app/hpi
9 http://www.maguirejackson.com/flats-rent-birmingham/shopexd.asp?id=324590
10 http://www.maguirejackson.com/flats-rent-birmingham/shopexd.asp?id=324594
11 https://www.gov.uk/government/news/joint-british-chinese-partners-to-construct-new-800-million-manchester-airport-city
12 https://www.gov.uk/government/organisations/land-registry
13 http://content.knightfrank.com/research/588/documents/en/q4-2014-2639.pdf
14 http://julietwist.co.uk/developments/northern-quarter-manchester/finlays-warehouse/
15 http://www.rightmove.co.uk/house-prices-in-my-area/marketTrendsTotalPropertiesSoldAndAveragePrice.html?searchLocation=L1+0AF
16 http://www.hamptons.co.uk/news-research/market-insight/residential-market-update/
17 http://www.telegraph.co.uk/finance/property/11518363/Britains-new-property-hotspots-will-see-house-price-hikes.html
18 http://www.economist.com/blogs/economist-explains/2014/04/economist-explains-17
19 http://www.cherwell.gov.uk/index.cfm?articleid=10371
20 http://nwbicester.co.uk/masterplan/
21 https://www.oxfordshire.gov.uk/cms/sites/default/files/folders/documents/roadsandtransport/transportpoliciesandplans/localtransportplan/ltp3/16-bicester.pdf

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