House and Rental Prices on the Rise

As the latest figures from HM Land Registry reveal, the average UK house price now stands at £230,292 while the average monthly rent is £959. Let’s take a look at the history of the UK property buying and rental market, the areas with the highest increase and the reason why house and rental prices continue to be on the rise.

A brief history of house price fluctuation:

  • 2007 saw an increase of 11%
  • 2009 saw a decrease of 17.4%
  • 2011 showed prices dropping by 0.8%
  • 2015 showed a steady increase up to 8%
  • As of July 2019, property prices are showing an average increase of 2.3%

So, why do house prices go up?

When it comes to inflation of house prices, there are a few factors to consider:

Supply and demand

In simple terms, when demand for houses increase, prices follow suit. When demand falls, so do house prices. Several factors can influence supply and demand, these include a lack of available land, lower government investment or regulations against building on green belt areas.

Economic growth

An increase in employment and in turn, a growth in salary will enable more people to invest in housing and therefore increase the demand.

Demographics

Levels of migration to certain areas in the UK and an increase in population as more people flee the capital’s soaring and unattainable housing prices increase demand in lower-cost areas, forcing house prices up.

Location, location, location

Homes that are situated in a city with a solid infrastructure, including transport links and convenient geographical location within the UK play a strong part in pushing housing prices up.

Financialisation

Demand for housing is only limited by a bank’s decision on offering a mortgage. As long banks are still lending, demand will continue to rise, as will prices. This is what we call ‘Financialisation’ of the housing market.

The Midlands: A Case Study

The East Midlands – home to cities such as Nottingham, Leicester, Lincoln, Derby, Northampton, Mansfield and Chesterfield has seen the highest growth, with house prices increasing on average by 3.2% in 2019. Closely followed by the West Midlands, with cities including Birmingham, Coventry, Wolverhampton and Stoke-on-Trent has seen an overall increase of 2.6% up until July 2019. Due to an employment boom in the Midlands, the area has seen a trend of more home buyers and an increase in average salary which have contributed to the increase in housing prices in the area. The growing population is seen as a key indicator for house price increase in the area. Birmingham is regarded as one of the youngest cities in Europe with 40% of the population being under 25. The five universities in Birmingham are also a contributing factor, having a high level of retention of graduates which is likely to further increase demand of the city’s housing market.

Rentals: Going, going…. going up

A 1% increase in rental prices across the UK was slightly below the prediction from the Royal Institution of Chartered Surveyors (Rics) who, in July 2018 anticipated a 2% increase. Rental prices are generally more stable than house prices, due to a few contributing factors; tenants taking out longer contracts, rent not being affected by interest rates plus more people are buying houses for investment. 

Rental Prices – a retrospective:

  • 2014 saw an increase of 1.5%
  • 2015 saw a further increase of 2.5%
  • 2016 saw a slight decrease of 2.2%
  • 2017 saw a decrease of 1.5%
  • 2018 rent prices stayed steady at 1.5%
  • As of July 2019, rental prices are showing an average increase of 1%

Factors Influencing Rental Increase:

Supply and demand

As with housing prices, when demand increases as does rent.

Local wage levels

Local wage levels determine the feasible maximum the average person can afford to pay in rent and still be able to cover household outgoings such as bills. An example: if the average salary in a city is £1,500 per month, you’re far less likely to be able to find someone willing to fork out £1,200 for a one bedroom flat. On the flipside, if the average wage is around £3,000 per month, the option is more viable.

Location

Geographic factors such as how close you are to a major town, restaurants, parks, schools and shopping malls can all influence the price of your rent.

Economic growth

Investment, employment opportunities and physical capital in an area you may be considering to rent in could also push up the price.

Upgrades

Kitchens and bathrooms are the key factors in elevating rental price, as if these are not up to standard for potential renters, this could be a real deal breaker. On the other hand, if these rooms are of a high standard, this will raise the rental price of the property.

House and Rental Prices on the Rise Aspen Woolf

Preston: A Case Study

Preston – a city that can boast that its people built the first ever motorway, the Preston bypass which opened in 1958, is also home to the highest rental increase in the UK. In Preston, Lancashire rents have risen by 8%, raising the average rent to £378 per month, closely followed by York and Stockport which showed an increase of 7%. Preston has seen quite a turn around with it’s government grant slashed from £30m to £18m in 2013 but with Preston being an ideal commuter option for working in either Liverpool or Manchester, this also determines the inflation seen in the Preston rental market.

Most housing associations cite that rental prices that eat up more than 30% of an individual’s income as unaffordable. For example, an annual gross income of £24,800 would be required for the rental of an average one bedroom flat in England. In Scotland £20,700 is required and in Wales the figure stands at £17,600.  With rental prices being unaffordable in two-thirds of the UK for most young people, this has seen house shares becoming a more practical option.

Aspen Woolf is an award-winning property investment company established in 2005 with offices in the UK and the UAE. Experts in wealth building opportunities for investors of all levels, we believe that through integrity, experience and quality of service we stand out from the crowd. Be it for buy-to-let investments, cash buying of property or rentals, we are here to guide you every step of the way.