UK property prices set to rise 40% in five years...time to buy? Yes!

Recent statistics published by economic analysts, Oxford Economics are predicting that house prices will rise by 40% in the next 5 years, which is good news for UK property investors. Although 40% is not a huge price growth - compared with that of CEE at the moment anyway - it is certainly a refreshing change from previous predictions that the market is about to crash.

Property investment specialists, Property Secrets, comment on their views of the UK market and the best strategies to adopt going forward.

Robin Bowman, Editorial Director, comments: “40% in five years is certainly not to be sniffed at.”

“And some of the stats are pretty mind blowing.”

“An average property in England will cost £302,400 by 2012, and that average will be seriously distorted by the average price of a London home - £500.”

“However, economic logic dictates that if a sufficient number of people cannot buy, because they have reached the affordability barrier, then this will lessen demand for property buying and prices will be affected negatively, ultimately making them more affordable.”

“This in turn will gradually allow more people to buy again. In the meantime, if demand to buy increases and prices are rising, demand for rented property should be eased and so push down prices.”

The market is clearly showing that there is a combination of high prices, high interest rates and insufficient salary rises that will indeed exclude a significant number of people from getting into the market in the first place, either because they haven’t enough money or they don’t choose to stretch themselves. People who already own property will also be less inclined to get into any more debt.

No-one can say when this point will be reached, or what will happen when it is reached. Will there be a crash or just correction? Slow growth or no growth?

A crash will only happen if an economic recession bites, and if it does we can expect – based on historical evidence – to see property price falls of around 20%, maybe a little more, and they’ll take two or three years or so to reach pre-crash parity.

Without a recession – and there are few signs of one coming, despite worries about debt (debt doesn’t cause a recession, loos of jobs does) – a slow down or a period of flat growth seems much more likely, this is Property Secrets’ view.

And this latest piece of research from Oxford Economics claims a period of flattish growth in 2008 will see property prices and affordability come together again to set off another round of price growth from 2009 onwards.

The Property Secrets view is that the UK is still a great market to invest in due to the fact that the market is very open, it is easy to carry out business (no language barriers, familiar tax, buying and selling rules) and the market is flexible, competitive and relatively easy to obtain finance in.

For investment purposes, it is essential to look at the UK market with a long-term view. It is fairly obvious which way prices will – over the longterm – be headed. And that is up.

The wonders of compound interest means that annualised growth of just 7% will see any investment double in value over ten years!

And there is also a huge lack of supply of property to meet demand in the UK. Not just now, but for many years to come, which is acknowledged by the government.

Property Secrets believe that the best strategy to adopt in the current climate, is to concentrate on that macro factor – which means you have to hold your investment for the longterm.

Robin concludes: “The number one consideration in the UK market currently is to generate positive, or at least manageable, cashflow.”

“The effect of getting this right is that you won’t need to sell if there is a temporary correction; but at a time of your choosing when you have been able to take advantage of stronger capital growth, perhaps ten years down the line.”

“You dictate when you sell, not temporary circumstances in the market.”

“One way to do this is to buy refurb at below market value, add value and create a higher yield.”

“The key to refurb is that the cost of buying, plus the cost of refurbishment must be less than the final value of the property.”

For more on this, visit Property Secrets website propertysecrets.net and see ‘The Lewis Report: How to make money on the UK property market’.