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Housing Market Forecasts
Hamptons International Research
Autumn 2013
www.hamptons.co.uk
Beyond your expectations
Housing Market Forecasts
Autumn 2013
Sales Market
North East
2014 Forecast: 2.5%
5 Year Growth: 16%
Average Price 2013: £100,000
Average Price 2018: £116,000
East Midlands
2014 Forecast: 4.5%
5 Year Growth: 21%
Average Price 2013: £125,000
Average Price 2018: £151,000
West Midlands
2014 Forecast: 4%
5 Year Growth: 21%
Average Price 2013: £131,000
Average Price 2018: £159,000
East
2014 Forecast: 5.5%
5 Year Growth: 25%
Average Price 2013: £177,000
Average Price 2018: £223,000
Wales
2014 Forecast: 3.6%
5 Year Growth: 18%
Average Price 2013: £117,000
Average Price 2018: £139,000
Greater London
2014 Forecast: 7%
5 Year Growth: 28%
Average Price 2013: £397,000
Average Price 2018: £511,000
South East
2014 Forecast: 7.5%
5 Year Growth: 30%
Average Price 2013: £220,000
Average Price 2018: £287,000
We expect these features to continue to characterise the market
in the short term. Activity levels will rise as demand picks up, but
with supply failing to keep up this will put pressure on prices,
particularly in London and the South. However, underlying
economic fundamentals will act as a brake on effective demand.
Household finances will remain under pressure, despite economic
recovery; affordability will deteriorate as prices rise; regulatory
constraints on lenders will ensure that their risk appetite is
contained and the threat of intervention from the Financial Policy
Committee will add to their caution. In addition, as prices begin
to rise, more sellers should return to the market and more homes
will be built which will help liquidity and transaction levels, and
dampen the pace of price growth. Rising interest rates will mean
that the pace of growth in both transactions and prices will retreat
from the end of 2015/16.
As usual there will be different paths of price growth in different
sectors of the market. House prices in London and the South of
England will continue to outperform the average for England and
Wales, while Northern parts of the country will see a more subdued
revival. That reflects both economic conditions and the pattern of
supply. Market dynamics which shift buyers from higher to lower
priced areas will boost prices in the central London market and
also the South as families migrate out of the capital. In the Prime
Central London market we expect demand to soften as investors
search for better yielding assets elsewhere. As the US recovers and
European markets look less risky other asset classes will begin to
look more attractive.
Central London
2014 Forecast: 8%
5 Year Growth: 32%
Average Price 2013: £514,000
Average Price 2018: £675,000
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Rental Market
In the rental market, the fact that there is more mortgage finance
available will mean that there will be some degree of switching
from renting to ownership, reducing demand. On the other hand,
accidental landlords are likely to take the opportunity to sell,
reducing supply. Affordability has deteriorated in the rental market
over the last few years and with more options we expect rental
growth to remain subdued in the short term. But the market will
still be supported by demand in areas where house prices are least
affordable and where there are larger numbers of migrant workers.
As the economy recovers, demand from skilled migrants and
corporates will be particularly relevant in London and the South.
New Build
New supply is imperative to the future stability of the housing
market. While output is picking up, it will be impossible to produce
enough in the short term to keep prices from rising in the face of
new demand. The need for most house building is in London and
the South, but these are precisely the areas where development
land is at a premium and planning permissions are more difficult
to achieve. A lack of supply is likely to be a continuing feature
of the market for some time.
Housing Market Forecasts Summary
Forecast
2013
2014
2015
2016
2017
2018
Transactions 000s
(HMLR & ROS)
800
880
970
1070
1070
1100
5
6
5.5
3
4
4
100
115
118
110
110
110
2
1.7
2.8
3
4
4.5
Annual House Prices Inflation
(HMLR) %
Prime Central London
2014 Forecast: 3%
5 Year Growth: 20%
Average Price 2013: £1,022,000
Average Price 2018: £1,231,000
“The fixation with house prices as an
indicator of housing market recovery is
misplaced. Transaction levels are a far
superior indicator of housing market
health. A liquid and active market is the
key to avoiding volatility and to ensuring
a stable and sustainable housing market
in the UK.”
Improved mortgage availability combined with increased
confidence and high expectations of future house price growth
has encouraged new – and pent up - demand to the market since
the summer of 2012. In the face of a slow response of supply from
both new build and existing homeowners selling their homes, the
housing market has seen rapid acceleration in house price growth.
Transaction levels have increased as mortgage finance has become
more available, but are still only a shadow of their former selves.
Yorks & Humberside
2014 Forecast: 4%
5 Year Growth: 20%
Average Price 2013: £118,000
Average Price 2018: £142,000
North West
2014 Forecast: 4%
5 Year Growth: 21%
Average Price 2013: £110,000
Average Price 2018: £134,000
© Hamptons International 2013
Autumn 2013
Summary of 2014 Forecasts
Regional House Price Forecasts 2014
South West
2014 Forecast: 6%
5 Year Growth: 27%
Average Price 2013: £179,000
Average Price 2018: £228,000
Housing Market Forecasts
House Building Starts, 000s
Annual Rental Inflation, %
© Hamptons International 2013
www.hamptons.co.uk
Housing Market Forecasts
Housing Market Forecasts
Autumn 2013
Autumn 2013
Economic Outlook
Forecasting the outlook for the UK housing market this year is even
more of a minefield than usual. Leaving aside the macroeconomic
uncertainties, as the US and Europe make tentative, stumbling
steps to recovery, distortions created by interventions in the UK
such as Quantitative Easing, Funding for Lending and Help to Buy
(H2B) add to the difficulty of the task. In addition, the uncertainty
that comes with an approaching general election, especially when
housing is high on the agenda for all parties, makes predicting the
path of the UK housing market daunting, to say the least.
improve and that inflation remains within bounds acceptable to
the Monetary Policy Committee, meaning interest rates can remain
where they are until the end of 2015. Our view on the housing
market is also dependent on the expectation that the Funding for
Lending Scheme (FLS) and both H2B policies remain in force for
the planned period (until 2015 and 2016/17 respectively). We have
assumed that a Mansion Tax policy will not come into force in this
forecast period and that the Financial Policy Committee (FPC) and
the Prudential Regulation Authority (PRA) will each keep beady
eyes on risky lending, as instructed by the Chancellor, to prevent a
housing market bubble from building up.
“Our forecasts are based on an
expectation that the UK economy
will continue to recover, although
we don’t expect it to be completely
plain sailing.”
Household debt, £m
Household Debt, £m
2,000,000
“Although low additions to new
housing supply and overenthusiastic
expectations about future house price
growth have the potential to push
house prices up very quickly, that
can only happen if credit markets
are willing.”
Central Economic Forecast
1,500,000
1,000,000
500,000
2013 Q1
2012 Q1
2011 Q1
2010 Q1
2009 Q1
2008 Q1
2007 Q1
2006 Q1
2005 Q1
2004 Q1
2003 Q1
Secured on Dwellings
Total Household Debt
Source: Bank of England
2002 Q1
2001 Q1
2000 Q1
1999 Q1
1998 Q1
1997 Q1
1996 Q1
1995 Q1
1994 Q1
1993 Q1
1992 Q1
1991 Q1
1989 Q1
1990 Q1
-0
But that doesn’t mean we shouldn’t try to understand what the
likely outcome would be under a set of reasonable assumptions.
Our forecasts are based on an expectation that the UK economy
will continue to recover, although we don’t expect it to be
completely plain sailing. The UK is only just coming out of the
longest and deepest recession for around a century. That means
there is a lot of catching up to do and a large amount of slack which
needs to be mopped up. For that reason, wage growth will probably
be lacklustre for some time and unemployment is unlikely to fall
very dramatically. On top of that, inflation is likely to stay above
its two per cent target for some time, which means households
won’t feel able to loosen their belts quickly, especially as the cost
of essentials, such as gas and electricity are rising faster than the
general rate of inflation.
Current Recovery Compared to Previous Years
TimeTime
Taken to
for GDP
Recover
Previous Downturns
taken
totofor
GDPafter
to recover
after previous
1990s
GDP
before
recession
Still recovering
6
Years to Recovery
5
2014
2015
2016
2017
2018
GDP, YoY %
1.5
2.2
2.4
2.75
2.5
2.4
Earnings, YoY %
0.8
2.8
3.2
3.5
4.5
4.5
Unemployment Rate, %
7.7
7.4
7.0
6.8
6.0
5.5
Inflation, CPI YoY %
2.7
2.5
2.4
2.2
2.3
2.2
Bank Rate, %
0.5
0.5
0.75
1.25
2.5
3.5
Source: ONS and Hamptons International
That’s not to say that the outlook for the economy isn’t positive – it
is, but there are risks. Our central view depends on the assumption
that conditions in the United States and Europe continue to
1970s
& 1980s
2013
downturns
There are downside risks however. Turmoil in the United States
could destabilise the world economy at a very fragile time, whilst
chances of another euro debt crisis, though small, haven’t entirely
disappeared. A setback in either of these economies would affect
the UK and its housing market recovery. There is also the risk that
increasing unrest in oil producing countries could cause a spike in
oil prices and precipitate an unwanted early hike in interest rates.
That could have a severe negative effect on both the UK economy
and house prices via the labour market and forced sales resulting
from higher unemployment and higher mortgage payments.
There is an upside too though. Global economic conditions could
improve more rapidly allowing faster job creation and household
balance sheet repair. A faster, yet balanced, economic recovery
would consolidate a more sustainable housing market recovery,
promoting transactions and a more fluid market. Although low
additions to new housing supply and overenthusiastic expectations
about future house price growth have the potential to push house
prices up very quickly. This can only happen if credit markets are
willing. The remit of the FPC and PRA to keep an eye on housing
markets should prevent the market from overheating.
4
3
2
1
0
1 2 3
Quarters
1970s
4
5
6
1980s
7
8
9
1990s
1970s
10 11 12 13 14 15 16 17 18 19 20
2000s
If trend growth continued
1980s
1990s
2000s
Economic Downturns
Source: ONS
Source: ONS
© Hamptons International 2013
www.hamptons.co.uk
© Hamptons International 2013
www.hamptons.co.uk
Housing Market Forecasts
Autumn 2013
Housing Market Forecasts
Autumn 2013
Transactions
House Building
It is refreshing to see some improvement in housing market activity.
Transactions across Great Britain stand five per cent higher than
in the same period in 2012. We expect that transactions will
continue to pick up but that it will take a long time before they
return to levels we became used to in earlier decades. That’s partly
because first-time buyers will still find it difficult to raise a deposit,
especially when wage growth is low, despite the Help to Buy
schemes.
The government is enthusiastic that the house building market is
picking up. The objective is to help the wider economy as much
as to dampen the rate of house price growth. New units are not
necessarily all for purchase either. The £1billion government Build
to Rent Fund is expected to deliver up to 20,000 build to rent new
build homes over the forecast period (included in our forecast
numbers).
But it’s not all about first-timers. About two thirds of housing
market activity is driven by existing owners. The fall in house
prices since 2007 means that this group has seen its equity severely
eroded, with average prices now still lower than at any time
between September 2006 and August 2008 (that’s five to seven
years ago – a typical length of time people to stay in a home before
moving on). Until households balance sheets have recovered and/
or prices rises have restored their equity position, the number of
sellers coming to market could be limited. This not only bears down
on transaction levels but also adds fuel to house price growth by
limiting the available supply.
There is another, more enduring reason why the levels of housing
market transactions, and indeed house prices are unlikely to be as
frothy as they were in earlier decades. That is because of the effect
of lower inflation on the length of time debt burdens are carried by
homeowners – explained in the pull out on the right.
“Transactions across Great Britain
stand 5% higher year to date
compared to the same period in 2012.”
The long run average number of transactions in GB per year, before
the financial crisis, was about 1.2 million. Since 2008 the average
has been just over half of that. It’s too simple to say that there is
pent up demand equivalent to 600,000 per year (three million)
that will flood into the market now, but there is a rump of activity
waiting to happen. We expect the uplift to come in the next three
years, while government stimuli are in place and before interest
rates and affordability make things harder.
The profile of transactions will be affected by changes in behaviour
around the times that government schemes come to an end and
interest rates are expected to rise. The end of H2B is likely to be a
relatively minor effect - the expectation of rising mortgage rates
will be more relevant. This is likely to cause the bringing forward of
transactions to lock in lower mortgage rates in 2015 and 2016. After
that higher interest rates will begin to choke off some activity.
However, while starts are beginning to increase and existing sites
in the pipeline are beginning to be completed, there is no chance
that the industry will ramp up output to the levels seen in the 1970s.
There are a number of reasons for this. While rising prices give
builders the incentive to raise output, the rate of price growth is
patchy across the UK. While we expect prices to increase across all
parts of the country, the pace is quite different. The need for most
house building is in London and the South, but these are precisely
the areas where development land is at a premium, and planning
permissions are more difficult to achieve.
Indeed, given the timescales required to get planning approval,
it is probably already too late to increase production by as much
as government or builders would like in the next two to three
years – especially if skilled labour constraints continue to worsen.
House Building Forecasts
2012
2013
2014
2015
2016
2017
2018
79
100
115
118
110
110
110
Housing Starts, England 000s
Source: DCLG and Hamptons International
Why Lower Inflation Makes it Harder for Homebuyers
Housing Market Transactions Forecasts
Transactions 000s
(England, Wales & Scotland)
2012
2013
2014
2015
2016
2017
2018
734
800
880
970
1070
1070
1100
UK housing has traditionally been a good investment – but particularly so when inflation has been high. At such times property
prices rise but the debt levels stay the same. But more importantly wages increase faster when inflation is high, so the debt burden
also falls at a quicker rate. In high inflation times, gearing up to borrow as much as you could to buy a property meant it was tough
in the first couple of years, but the pain subsided quickly. When inflation is low (and wage growth even lower) that gearing up
strategy suddenly looks less attractive.
Impact of Wage Growth on Debt Burden
Source: Land Registry, Register of Scotland and Hamptons International
Impact of wage growth on debt burden
The downside risks also spring from the state of household finances
and affordability. If households are more vulnerable than we
expect, deteriorating affordability could stall activity growth
as prices rise, even before higher interest rates bite.
25%
20%
15%
Debt
The risks to transactions forecasts are fairly evenly balanced. On
the upside there could be more activity if economic conditions
allow household finances to recovery more swiftly and encourages
greater numbers of existing owners to come into the market. In
addition, if expectations about future house price growth increase
rapidly, there will be a greater push to activity as buyers rush to
beat the market.
10%
5%
GB Transactions
byRun
Quarter
GB Transactions by Quarter Compared
to the Long
AverageCompared
to the Long Run Average
0%
0
450
Residential Property Sales, 000s
“The £1billion government Build to
Rent Fund is expected to deliver up
to 20,000 build to rent new build
homes over the forecast period.”
1
2
3
4
5
6
7
8
9
10 11
12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
400
2% Wage Growth
350
300
5% Wage Growth
10% Wage Growth
Source: Hamptons International
250
200
150
100
50
Source: HMLR and RoS
© Hamptons International 2013
Quarterly Transactions
2013 Q2
2012 Q4
2012 Q2
2011 Q4
2011 Q2
2010 Q4
2010 Q2
2009 Q4
2009 Q2
2008 Q4
2008 Q2
2007 Q4
2007 Q2
2006 Q4
2006 Q2
2005 Q4
2005 Q2
2004 Q4
2004 Q2
2003 Q4
2003 Q2
0
Assuming a 95 per cent H2B mortgage at a five per cent rate on the average house price of £165,000, in the first year mortgage
payments would take up 21 per cent gross income. With wage growth of ten per cent - not dissimilar to wage growth in the 1980s
- the burden of mortgage payments rapidly erodes. Even with five per cent wage growth the burden falls by a third in seven years,
but with wage growth of two per cent the burden hangs around a lot longer. Not only does that mean that paying off a mortgage
feels harder for longer, but it means that there is less money left over to save for trading up. This is one of the factors which the
UK market is still adjusting to and will continue to serve as something of a brake on the pace of the house price growth that we
should expect to see.
Long Run Average
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© Hamptons International 2013
www.hamptons.co.uk
Housing Market Forecasts
Autumn 2013
House Prices
Housing Market Forecasts
Autumn 2013
Greater London
But expectations can be dangerous and fuel bubbles, if they are
excessive and encourage buyers to gear up their borrowing in order
to beat the market. We are confident that this will not be allowed
England & Wales
North
Midlands
East
London
South East
Aug - 2013
May - 2013
Feb - 2013
Nov - 2012
Aug - 2012
May - 2012
Feb - 2012
Nov - 2011
Aug - 2011
May - 2011
Feb - 2011
Nov - 2010
Aug - 2010
May - 2010
Feb - 2010
Nov - 2009
Aug - 2009
May - 2009
Feb - 2009
Nov - 2008
115
110
105
100
95
90
85
80
75
Aug - 2008
“Rising prices should encourage
some more sellers into the market,
adding liquidity, but a lack of supply
will support house price growth,
particularly in London and the South.”
These expectations of price growth are important because groups
of potential buyers have been waiting for the market trough to
make their move. With more finance available this is now possible
and so some renters will move back into ownership and contribute
to demand.
Price recovery: 2007 market peak=100
Price Recovery: 2007 Market Peak = 100
May - 2008
While house building is increasing – starts are up by 20 per cent
compared with last year - the addition to the total stock from new
build is still small and so cannot solve the underlying shortage
alone. Rising prices will begin to release mortgage prisoners and
should add liquidity as existing owners come to market , but we
expect that a lack of supply will continue to support house price
growth, particularly in the London and the south.
Feb - 2008
“We expect house price growth to pick
up in the next two years as economic
recovery, greater confidence and the
effect of government stimuli feed in.”
to happen in this recovery. The extent to which prices can rise
will be determined by affordability and the availability of credit.
Without enough new supply the rise in prices will quickly erode
affordability. With more cautious lending practices, and beady
regulators’ eyes, this should prevent the overall market
from overheating.
Nov - 2007
We expect house price growth to pick up quickly in the next
two years as the effect of improved economic conditions, higher
expectations of future house price growth and government stimuli
feed in. An amount of pent up demand has built up throughout
this economic cycle which will take advantage of the availability
of finance and government support to return to the market.
to buy is bigger in London than anywhere else in the UK. This
suggests that London prices will continue to rise faster, at least in
the short term. But looking further ahead, buyers in this part of the
country are not immune from affordability issues and even though
the capital’s economy is more buoyant, this is no guarantee that
price growth can be sustained at such high levels.
The relative buoyancy of London’s economy, coupled with overseas
investment looking for a safe haven, has supported price and
transactional growth in the capital for some time. Indeed, London
is the only part of the UK where prices are now above their prerecession peak. The lack of supply is also particularly pronounced
in London. The gap between instructions to sell and enquiries
Source: HMLR
House Price Forecasts, Annual Change
2012
2013
2014
2015
2016
2017
2018
England and Wales, %
0.8
5
6
5.5
3.0
4.0
4.0
Greater London, %
5.9
9.0
7.0
6.0
4.0
4.5
4.5
Prime Central London, %
13.7
10
3.0
2.5
3.5
4.5
5.5
Central London, %
8.3
11.5
8.0
7.5
4.5
4.0
4.0
South of England, %
1.7
5.0
7.0
6.0
4.5
4.5
4.5
Source: HMLR and Hamptons International
The Prime Central London Market1
South of England
We expect that the rate of house price growth in the Prime Central
London (PCL) market will now decline. An improvement in the
global economy and particularly greater confidence in Europe
means that we expect fewer safe haven flows. In addition, after
rapid growth of PCL values in the last few years, investors will
be wary about how much more capital growth can be achieved.
The performance of other investment assets is also crucial. As the
recovery in US and Europe gathers pace, investors will consider
other types of investment asset as their yields improve. There are
already signs of some resistance on pricing in PCL markets and we
expect that demand will now begin to soften. However, we still
expect prices in the PCL market to rise, albeit more modestly than
elsewhere in the capital, for two reasons. First the severe lack of
supply and second, London’s status as a prime global city.
Like London, the economy in the South is more buoyant than other
parts of England and supply is also limited, particularly in the
areas abutting London. Both of these characteristics mean that
we expect this part of the country to outperform the average for
England. In addition, Hamptons International data already shows
some evidence of increasing demand from Londoners wishing to
relocate from the capital. As affordability conditions in the capital
deteriorate, this phenomenon is will continue which suggests that
the South will see similar growth to London.
The Central London Market2
Upside risks to house price growth come from low supply and
over-enthusiastic expectations. If existing owners do not feel
comfortable enough to move, or do not meet lenders criteria, tight
supply will mean house prices will increase further. If this gives
more fuel to expectations, prices could increase still further.
© Hamptons International 2013
On the downside the biggest risk is from interest rates. If household
finances are still too fragile to withstand a rise, this could lead to
an increase in forced sales which would bear down on price growth
but also affect confidence and expectations, leading to further
softening.
www.hamptons.co.uk
We expect that the Central London market will outperform other
parts of the capital, particularly in the short term. That’s partly
because we expect investors to continue to shift demand to areas
slightly further out, yet still central, in search of better capital
growth. This creates dynamics within the boroughs of the Central
London market which will support the growth in prices in the
overall area. As prices rise in the most expensive boroughs, buyers
move to cheaper, but up and coming areas, raising prices there and
increasing the average for the whole area. This trend is already
responsible for double digit annual price growth in areas like
Camden, Hackney and Wandsworth.
© Hamptons International 2013
Other parts of England
Outside of London and the South, house prices are expected to
rise too, but at a much slower pace. This reflects the very different
economic conditions across the different regions, but also the
relative costs of buying and renting. In areas where house prices are
lower to start with, cost of buying a home with a 95 per cent loan
under the H2B scheme is less than the cost of renting. This isn’t the
case in London and the Southern Regions. This should give an extra
lift to the regions outside of the South, but that will be tempered by
weaker economic and labour market conditions.
1/ Prime Central London is defined as the London boroughs of Kensington
& Chelsea and Westminster
2/ Central London is defined as London boroughs of Camden, Hackney,
Hammersmith & Fulham, Islington, Lambeth, Southwark, Tower Hamlets
(Canary Wharf) and Wandsworth.
www.hamptons.co.uk
Housing Market Forecasts
Autumn 2013
Housing Market Forecasts
Autumn 2013
Rental Market
London and the South of England
“The shift to ownership will likely be
less pronounced in London and the
South as it will remain cheaper to rent
than buy with at 95 per cent LTV.”
Rental Inflation YOY Q3
Rental Inflation YOY Q3
6%
per cent rate) shows buying costs are £240 per month more than
renting. Mortgage rates would have to fall significantly to bring the
monthly cost of buying at high LTVs in line with renting.
5%
Rental Inflation
4%
3%
2%
1%
0%
-1%
-2%
Wales
North
Midlands
Greater
London
Source: Countrywide Lettings Index
East of
England
South
West
England
& Wales
South
East
Source: Countrywide Lettings Index
As the economy picks up, the most significant downside risk
to rents is tenants moving out of the rental market to buy.
Conventional wisdom dictates that as the sales market recovers
demand will move across into sales leaving the rental market
deflated. The introduction of the second stage of help to buy, with
its focus on high LTV lending, would appear to hasten this trend.
But high house prices means that renting is still comparatively
affordable compared to the cost of servicing a high LTV mortgage
in many areas. This will limit the number of tenants able to move
into ownership.
The shift to ownership, aided through help to buy, will likely be
less pronounced in London and the South East (at least at present
lending rates) than the rest of England as it remains significantly
cheaper to rent than buy, with at 95 per cent LTV. Comparing the
monthly rent and mortgage repayment on an average priced two
bedroom property in London (95 per cent LTV mortgage at a 5
On the supply side the recovery in the sales market will also
have an impact. Accidental landlords (owners renting out their
properties due to being unable to sell them) will start selling
their properties, as house prices pick up. It’s difficult to quantify
the amount of supply that this will remove from the rental pool.
However it will certainly act as a support to rental values across
England and Wales, counterbalancing the loss of demand from
tenants moving into home ownership.
We expect rental pricing across the UK to remain subdued as the
sales market recovers and a number of renters move across into the
sales market, however this will be most keenly felt in the regions
where renting has become expensive compared to owning. Our
forecast for rental growth in England & Wales is 1.7 per cent in 2014.
As applies for buyers, affordability is a constraint to the pace of
rental growth. Over the long term, rental growth has been closely
linked with earnings. But as demand for rental property has
increased due to mortgage availability, problems in the owner
occupied market, rents have grown more quickly, particularly in
London. As the sales market recovers and more tenants are able to
shift into ownership, we expect rental growth to remain subdued.
As earnings growth recovers rents will likely begin start to grow in
line with earnings, but the rate at which affordability deteriorates
in the ownership sector will also be a factor to watch.
Cost of Buying at High LTVs Versus Renting by Region
Change in Nationality of Hamptons International’s Tenants
£18,000
£16,000
£14,000
The strong international demand for rental properties is primarily
driven by skilled migrants and students, who are less likely to be
affected by fluctuations in the sales market as domestic tenants.
A similar trend has been observed among corporate tenants
where demand has been steadily increasing over the year. Lets to
corporate clients in 2013 are now a third (34 per cent) higher than
the same period in 2012, largely driven by the Finance, Oil & Energy
and the Technology sectors
As the economy improves, demand from corporates and skilled
migrants is likely to continue to grow. The additional demand
from these groups will supplement some of which is lost by tenants
moving across into the sales market. The effects will differ across
different sectors and regions though. The effect is likely to be
strongest in London, but will also be evident outside of the capital.
On this basis we expect the rental market price growth in the South
to outperform the UK market in future years.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2012 Q1
2012 Q2
2012 Q3
UK Nationals
2012 Q4
2013 Q1
2013 Q2
2013 Q3
International Tenants
Source: Hamptons International
Rental growth forecasts
2012
2013
2014
2015
2016
2017
2018
England and Wales, %
1.5
2
1.7
2.8
3
4
4.5
Greater London, %
2.7
3
3.5
4
4
4.5
5
Central London, %
0
0
1.5
3
3.5
4.5
5
South (SE & SW), %
0.8
0
1
3
3
4
4.5
The risks for rental growth are towards the upside. Falling Supply
due to accidental landlords leaving the market would support
prices. Strong house price growth would make affordability for
buyers more difficult, thus increasing rental demand. A tightening
credit conditions for new buyers would mean less tenants can move
out of the rental market, propping up demand.
£20,000
Annual Costs - 2 bed property
Activity in the rental market in the South increased in 2013, with
new lets up 10 per cent compared to the same period last year. It
seems that many of these can be attributed to increased demand
from international tenants. Between 2012 to 2013 the number of UK
tenants in London and the South East was static, but the numbers
of international tenants increased by 30 per cent.
Proportion of New Tenants
Rental growth in England and Wales has been subdued over
2013. Rents in the third quarter of 2013 were 1.6 per cent up on the
previous year, compared with about four per cent a year earlier.
The Northern regions; Midlands and Wales out-performed London
and the South.
The downside risks for rental growth are primarily focussed on
demand moving into the sales market, thus tipping the supply/
demand balance in favour of tenants. Weaker economic growth,
particularly if wage growth remains subdued, would also hold back
rental price growth due to affordability constraints.
£12,000
£10,000
£8,000
£6,000
£4,000
£2,000
£0
South West
South East
London
East
East
Midlands
England
H2B2 95% LTV Mortgage Repayments
Source: Hamptons International
© Hamptons International 2013
West
Midlands
Y&H
North West
North East
Annual Rents
Source: Hamptons International
www.hamptons.co.uk
© Hamptons International 2013
www.hamptons.co.uk
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©Hamptons International 2013. This report was published for
the purpose of general information and Hamptons International
accepts no responsibility for any loss or damage that results
from the use of content contained therein, including any errors
or negligence from third party information providers. It is your
sole responsibility to independently check and verify the facts
contained within this report. All opinions and forecasts within
this report do not in any way represent investment or other advice.
Reproduction of this report in whole or in part is not allowed
without the prior written consent of Hamptons International.
Johnny Morris
Head of Research
[email protected]
+44 (0)207 758 8438
@Hamptons_JM
Fionnuala Earley
Residential Research Director
[email protected]
+44 (0)207 758 8465
@FE_Hamptons
www.hamptons.co.uk
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