Seeking house price gains? Look to the North East and Scotland



Investors looking for strong house price growth in the years ahead should focus on Scotland and the North East, according to predictions by Hamptons International.

Scottish house price growth is expected to total 7% by the end of 2021, more than any other UK region.

And following moderate increases prices are expected to inflate by 20% over the course of the next four years north of the border.

However the North East of England is expected to be the top region in the next four years, with prices inflating by 21.5%.

This could include an increase of 6.5% at the end of 2021 and 6% in 2022.

If investors are looking for house price growth they should apparently avoid London, where prices are only expected to increase by 7% in the next four years, including growth of 1% in 2022. These returns lag behind every other region.

Chart 1 – Regional house price forecast (Q4 of each year)

2020 2021 (F) 2022 (F) 2023 (F) 2024 (F) 4 Year Forecast
Greater London 4.0% 1.5% 1.0% 1.5% 3.0% 7.0%
East of England 4.3% 4.0% 2.5% 2.5% 2.0% 11.0%
South East 4.7% 5.0% 3.0% 2.5% 2.0% 12.5%
South West 6.9% 3.0% 3.0% 2.5% 2.5% 11.0%
East Midlands 6.8% 4.0% 4.0% 3.0% 2.0% 13.0%
West Midlands 6.2% 5.0% 4.0% 3.0% 2.0% 14.0%
Yorkshire & Humber 7.5% 4.0% 5.0% 4.0% 3.0% 16.0%
North West 8.5% 4.5% 5.0% 4.0% 3.0% 16.5%
North East 6.2% 6.5% 6.0% 5.0% 4.0% 21.5%
Wales 7.4% 5.5% 5.0% 3.5% 3.0% 17.0%
Scotland 7.4% 7.0% 5.0% 4.5% 3.5% 20.0%
Great Britain 6.1% 4.5% 3.5% 3.0% 2.5% 13.5%

Source: ONS & Hamptons                                                                                                       

When making predictions Hamptons noted that house price growth has peaked at 13.2% in June.

This will moderate to 4.5% by the end of 2021, before falling to 3.5% in 2022, 3.0% in 2023 and 2.5% in 2024.

Aneisha Beveridge, head of research at Hamptons, said: “The housing market has confounded expectations and forecasts in past months.

“Back in the autumn of 2020, such were the economic challenges being faced that we could not have envisaged the extraordinary demand for relocation which we have seen this year.

“But there has been a huge attitudinal change towards property, which cannot be attributed to the stamp duty holiday alone.

“People now place a higher value on their homes, having have spent more time in them than ever before. Flexible and remote working, which look set to continue, have encouraged households to make bigger moves.

“As a result, more homes are likely to have been sold in 2021 than in any year since 2007. This is why we also think housing activity will surpass pre-pandemic times in 2022 and beyond.”

She added: “The pandemic has accelerated the closing of the house price gap between London and the rest of the country. Even so, we still expect London to underperform the rest of the country until 2024, when the cycle is likely to end.

“While we will see a degree of levelling up over the next few years, the gap between house prices in the capital and the other regions is likely to be wider than that seen at the end of the previous cycle in 2007. And this divergence will set the pattern for future performance.”

Transactions

More homes sold in 2021 than in any year since 2007, though activity should moderate towards the end of the year, after the minimum threshold for stamp duty moves back to £125,000.

In 2022 Hamptons predicted activity to be supported by households who have been unable to move home in 2021 as a result of affordability pressures, job uncertainty, or because they could not find a suitable property.

First-time buyer numbers should increase next year as the rates on higher-loan-to-value mortgage deals cheapen.

The firm forecast there to be 1.25 million transactions across Great Britain in 2022, 17% fewer than 2021, but 22% more than in 2019.

Thanks to a growing economy and low-interest rates, transactions will reach 1.3 million in 2023 and 2024. As people spend more time in their homes and as a consequence are on the hunt for space, transactions are expected to remain above pre-pandemic levels.

Chart 2 – Covid-19 induced changes mean households will make more moves than pre-pandemic: (Number of housing transactions across Great Britain)

Rental Growth

Hamptons forecast that the rapid pace of growth in the rental market will slow in 2022.

But the rate of increase should still be above pre-pandemic levels, supported by tenants’ willingness to pay for extra space and by unprecedentedly low levels of stock.

The firm forecast that rents will rise by an average of 2.5% in 2022 across Great Britain, following an increase of 3.0% this year. Growth will be dictated by what happens to peoples’ incomes in 2023 and 2024.

Growth is likely to be slower in the capital, particularly in Inner London where rents may not return to pre-pandemic levels until the middle of 2022.

Hamptons is forecasting overall rental growth in London of 0.5% this year, with pickup to 1.0% in 2022 and 1.5% in 2023. Rental growth is then expected to accelerate to 3.5% in 2024.

The regions outside London, where affordability is less stretched, will see stronger growth. Rents seem set to move in similar directions, with no significant North-South divide. The South is likely to see marginally stronger growth, with rents here forecast to rise 14.5% by the end of 2024.

Chart 3 – Rental growth forecast (Q4 each year)

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