What will your property investment be worth in five years’ time?

 

A key component of a successful property investment is seeing its value rise over time. New forecasts demonstrate why UK housing remains a sound investment choice. 

World-leading estate agents Savills has released its latest five-year forecast for the UK housing market. The report looks at both prime and mainstream residential markets, and for those with property investment on the agenda, there are some interesting regional predictions.

While transaction levels are expected to return to normal levels, after an unprecedented surge since the pandemic, house price growth will slow but continue on an upwards trajectory, says Savills. This is partly due to the ongoing supply shortage in many parts of the country.

Lucian Cook, head of residential research at Savills, commented: “After such intensity in the market and without the imperative of a stamp duty holiday, we know that there’ll be less urgency in the market from 2022. Indeed, we have already seen three-month on three-month house price growth slip back from 3.9% at the end of June to 1.7% at the end of September.”

But as always, certain locations still have some hefty price rises ahead of them.

UK regions for property investment

Mainstream house prices will climb by +13.1% across the UK between now and 2026, says Savills. This is with rises slowly shrinking year by year, with a 3.5% increase in 2022, followed by 3%, 2.5%, 2% and 1.5% in the years after that.

But on a region-by-region basis, the picture can be drastically different. Recently, markets furthest from London have seen the strongest price growth. For those looking at property investment options, it seems these trends are largely set to continue.

In the north-west, property prices could rise by 18.8% over the next five years. So, for an average property purchased now at £200,000, this would be gain of £37,600 by 2026. Yorkshire and the Humber mirrors this with the same 18.8% rise expected.

Wales is next on the list with 18.2%, followed by the north-east (17.6%), East Midlands (15.9%) and West Midlands (15.9%). All of these areas have been seeing positive housing market growth in recent years, with many locations within these regions being recognised as property investment hotspots.

At the other end of the scale, Savills predicts London will see house prices rise by 5.6% by 2026.

Generating rental returns

While potential capital gains is an important part of house buying, strong rental yields can make a property investment more worthwhile over time.

Savills also looks at the country’s rental market in its report. It found that the year so far has proven particularly strong, like the buyers’ market, in the private rented sector. Annual rental growth returned to the likes of Manchester, Birmingham and Edinburgh – key rental areas in the UK.

Tenant demand in cities remains strong, despite the “race for space” seen in some parts of the industry. This has kept London rents strong over the past few months. The massive growth of the build-to-rent sector is also playing a part in keeping rental housing stock levels afloat.

In terms of pricing forecasts, Savills expects rents to be 19.9% higher by the end of 2026 than they are now. The agency says this correlates with long-term income growth.

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