Indeed, Nationwide reported a 14-month high for house price growth in January, with London and the South East in particular showing their strongest market performance in some time with positive growth.
A majority government, as well as clearer time frame for Brexit, have both contributed to a greater sense of confidence amongst buyers. All of this has suggested good prospects for growth this year, although increasing concerns around coronavirus may see the residential property market slowing somewhat in coming weeks.
Q4 2019 set the stage for current trends
December was an important turning point for the residential market, with average annual UK house prices rising by 1.4%, significantly above the more modest 0.5% average house price growth for 2019 as a whole.
In the run up, Brexit uncertainty had weighed heavily on the sector. However, the final month of 2019 saw the largest increase in average UK house prices since November 2018 and, as 2020 began, it became apparent that Q4 2019 had been the strongest quarter of the past year by far.
Nonetheless, there was wide regional deviation in house price growth, with a greater increase in Scotland, the West Midlands and the North, which had its strongest quarter in terms of house price increase since Q1 2018.
Growth remained, as a whole, strong outside of London and the South East, although also of note towards the end of last year was a decline in the rate at which house prices were rising in Northern Ireland, down from a rate of 3.4% increase year-on-year in Q3 to a rate of just 1% year-on-year in Q4 2019.
It is interesting that the rate of increase was lowest in London and the South, perhaps as Brexit anxiety weighed more heavily in closer proximity to the city and in affluent areas that were more heavily populated with remain voters. London had the weakest performing residential property market in Q4 of 2019, with a 1.8% year-on-year decline in average house price, according to Nationwide.
As a whole, 2019 saw the number of planned new homes hit a 13-year high. According to the National House Building Council, 161,022 homes were registered to be built, which is a positive indication of the potential yields to be found through direct lending to property developers.
The outlook for investors in residential property
As readers will be well aware, the residential property sector has seen an optimistic start to the year described by some as a ‘Boris bounce’ in the sector.
While the long-term implications of Brexit remain to be seen, we have observed an undeniable uptake amongst investors using the BLEND Network platform and lending directly to developers. Notably this month, two loans totalling £1 million to developers in high-growth areas in the Midlands and Northern Ireland closed in under 30 minutes.
Following the 1.4% annual increase in the average UK house price in December last year, January saw a further increase, as the average annual UK house price growth edged up to 1.9%.
Positively, the greater rise seen in these past two months followed twelve successive months where annual average growth had been under 1%.
We believe that is a good indication for the year to come, and although some analysts have forecasted the overall rate of increase in average house price may remain flat over 2020, there are key areas of the residential property market we predict will do particularly well over the coming year.
Indeed, The Royal Institute of Chartered Surveyors (RICS) has clarified that it expects sales and prices to rise in all regions over the next 12 months and it has recorded a rise in agreed sales over the last two months, with the West Midlands leading the way.
Activity outside of London
For investors seeking to profit from potential yields in housing development, at BLEND Network we are seeing a healthy deal flow coming from across the Midlands, Scotland and Northern Ireland especially. In the Midlands, this is a notable uptake from developers seeking investment in projects for houses of multiple occupancy (HMOs).
We expect HMOs, as well as serviced accommodations in the right locations to continue to bring robust yields to investors, although we would reiterate that these are likely to perform best in the right locations (near large employment hubs, universities and significant transport links).
Ultimately, the outlook for the year to come is positive and we have had a strong start to 2020. While it is important to remember that this year is a transition period for exiting the EU, and as such we expect international and political developments to influence the behaviour of the market this year, this is not to detract from the promising start to the year for residential property and our belief that there are robust yields to be found from the right investments in property development in 2020.
Your capital is at risk if you invest in P2P. Blend Loan Network Limited is an Appointed Representative of Resolution Compliance Ltd which is authorised and regulated by the Financial Conduct Authority (FRN. 574048).
*Yann Murciano is founder and CEO of Blend Network
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