AUGUST

31 AUGUST 2022

As the Summer months draw to an end and families return to work and school it is worth assessing the developments that have recently taken place in the UK property market and what that means for investors. The most notable news in August was of course the Bank of England’s increase of the base rate to 1.75%. This rate rise means that we as RPA have been fielding more questions about what this means for the property market and how investors should go about maximising returns.

Moving into September and the final quarter, we will see the confirmation of a new UK Prime Minister bringing greater stability to the UK market and a hint of the economic policies to come. It’s likely that these higher interest rates are something everyone will have to get used to with inflation peaking this year and then falling in 2023 (KPMG). House price growth appears to be levelling off in some locations, a trend that will continue for the foreseeable as rising living costs and mortgage rates increase the affordability gap and deter new market activity, particularly amongst first-time buyers. But, we’re also witnessing a rental market that is growing quickly across the UK providing increases in rental incomes for landlords able to enter the market at this time.

The naysayers comparing 2022 to the financial crisis of 2008 and that of the 1990s are likely to be disappointed. The level of debt as a proportion of property values is ‘nowhere near’ where it was then, according to the FT property correspondent George Hammond, and the reckless lending of those periods has been curbed by the affordability places put in since 2008. Looking towards 2023, as energy markets stabilise and the UK safely navigates the cost of living crisis in the coming year, we’re likely to see house prices begin to rise again, albeit more modestly than what we’ve witnessed over the last three years. As one market commentator said, house prices have dipped only in 16 out of the last 91 years.

To maximise returns (as well as trying to prolong the holiday season a little longer) we thought we’d use an upcoming case study as an example of how to do this and feature the UK’s most popular coastal city, Brighton & Hove, home to one of our latest developments. With the rise in interest rates Brighton with its strong tenancy pool, both for traditional lets and short-term lets offers more to investors with its potential greater yields providing a cushion against fluctuating interest rates.

Suffering from post-holiday blues?

Bring it on Brighton

That Soho House has recently opened its latest outpost overlooking Brighton Beach tells you all you need to know about Brighton; a city on the up, often compared to Berlin and San Francisco for its vibrant cultural landscape. Brighton, arguably the most popular town on the UK’s south coast, has always maintained its own identity rather than being part of the commuter belt desirable for its relative proximity to London. In a city that has purposely pivoted itself towards future industry, its strong market isn’t the result of changed living preferences post-pandemic (although that has contributed to a price rise), but of an ICT and digital sector that has grown by more than 40% over the last five years. Dubbed The Creative Coast, a hotspot for the Creative, Digital and IT sectors (CDIT), it has one of the UK’s strongest enterprise economies.

With a chronic undersupply of new build developments – there were zero new build properties sold within a 3.5mile radius of RPA’s new launch, The Goldstone Apartments) in the 12 months to May 2022 – the last two years have seen major investment in the city by major players. Legal & General Investment Management have invested £76.5m in a BtR on Ellen Street in 2021 – the first of its kind in Brighton (alongside its investment in schemes in Leeds, Bristol, Salford and Birmingham) and Moda Living has also set up shop with a site on the city’s former trading estate. And with both of these large-scale investors concentrating on BtR, one might say that purchasing a new-build property in Brighton is rarer than a hen’s teeth.

Tourism is also a huge driver of revenue in the city contributing £7bn to the local economy and nearly 2 million overnight stays – which from an investor perspective, gives access to an additional rental pool. Although don’t forget that 71% of residents in Brighton & Hove are of working age and the average main wage earner is under 45 with no dependants, giving it an incredibly strong tenancy profile. That said, in the present economic climate, investing in a city which gives easy access to short-term lets is advantageous, enabling property investors to take advantage of higher yields providing a cushion from rising interest rates. That Brighton topped the list of UK places with the strongest house price growth over the next 20 years is indicative of its popularity as a place to live and visit. And investing in a place such as Brighton, a place where the population has a higher level of disposable income – along with a strong jobs market – can insulate investors from void periods on their properties.

The RPA View

RPA focuses exclusively on gains to be made for our clients and we trust in the resilience of the UK market. Commentators predict the market will end 2022 on a 5% annual price rise and the employment rate remains high; thus comparisons with 2007 and earlier are not particularly helpful as the UK faces an extraordinary set of circumstances that, put simply, can only be ‘weathered’.  

With interest rates rising, investors naturally look to assets that can offer higher yields or logical assurances of long-term capital appreciation, which is why we’re pleased to be offering investment stock in Brighton, a place where demand is vastly outstripping supply, continuing to exert pressure on house prices whilst also having a strong and reliable pool of tenants. We’re working with our partners to keep clients updated with the best mortgage rates – and terms – available for those looking to purchase with finance, which will make all the difference to buying well in the coming quarter. As ever we remain here for any questions and also look forward to publishing our Brighton Investment Market guide in the coming weeks.