LONDON, ENGLAND, July 22, 2010
/24-7PressRelease/ -- Despite continuing concerns surrounding access to appropriate mortgage finance, a significant proportion of investors hope to increase their residential property holdings over the coming 12 months; focused firmly on the capital.
London Continues to Lead Market Outlook
Neil Young, CEO of property portfolio managers, Young Group, points out; "Latest Young Index figures show that the proportion of landlords who expect property prices in London to rise or remain static over the next 12 months has increased by 10% to 87%, from a period of relatively stable sentiment during the preceding three quarters."
For UK property outside London, a greater number of investors expect prices to fall during the next 12 months, so sentiment remains less positive than for the capital. However, there has been a significant increase in optimism during Q2 this year with those expecting stable or rising prices increasing from 49% to 70%. This is the highest figure since 2007, when Young Index began.
Average property prices in London are forecast to increase by 2.5% during the forthcoming 12 months.
For property outside the capital, the improvement in property price outlook means that the 12 month forecast has turned positive for the first time. Average prices are expected to increase by 0.2%, compared to the 12 month fall of 1.0% that was predicted last quarter.
This shows converging sentiment between residential property in London and the rest of the UK.
Interestingly, taking residential investment as a whole, investors increasingly attribute importance to capital growth. 55% of respondents to this quarter's Young Index cite capital growth as more important to their investment decisions than rental income or total annual returns. This compares to 36% who expressed the same opinion a year ago.
Looking to the Long Term
95% of landlords questioned intend to hold their residential property investments for at least the next 12 months. Furthermore, 55% expect to hold their assets for at least 10 years and 38% of private property investors intend to retain their properties for the next 20 years or more, up from 12% a year ago.
Of the 5% of investors who identified that they may sell a residential property asset over the coming 12 months, the majority intend to liquidate the asset for cash, as opposed to reinvesting into a different asset class.
The average period that landlords expect to hold their rental properties continues to increase. On average, investors expect to hold for 13.6 years. This represents a significant increase on the 12 year hold period predicted last quarter and is up from a little over 10 years, reported at Q2 2009.
Robust Returns Providing for the Future
Perhaps a sign of changing sentiment towards saving and providing for retirement, 55% of investors maintain that their primary reason for holding residential property is that it forms part of their pension planning (up from 44% a year ago).
Asset Class Allocation; Increasingly Tangible
Over the past year, there has been a marked shift in the mix of additional asset classes that residential property investors hold. The number of investors holding tangible alternative investments and low risk investments such as cash and premium bonds has increased. Fewer investors now hold off-shore investments or stocks & shares.
The asset class 'top movers and shakers' of the past 12 months is most easily demonstrated in figure 1, with tangible and low risk assets leading the charge.
Figure 1:
Asset Class Popularity
Alternative Investments + 145%
Premium Bonds + 46%
Cash + 11%
Commercial Property - non mover
Stocks & Shares - 6%
Off-Shore - 57%
Purchase Constraints
Neil Young explains; "The ongoing difficulties of securing funding for buy-to-let property purchases remains of concern to UK residential investors. This perhaps accounts for the fact that although investors are increasingly positive about prices and unquestionably see property as a long term investment that provides robust returns, they do not expect to secure additional investments over the next 12 months in as great a number as in previous quarters."
The percentage of investors who expect to acquire additional UK property outside the capital continues to fall, reaching a low of 16%, not seen since the end of 2008.
However, London fares slightly better than the rest of the UK with a small increase in the number of investors who, over the coming 12 months, hope to secure additional residential properties in the capital.
On the whole, landlords appear resigned to the fact that access to mortgage finance is unlikely to be unlocked quickly. At the beginning of 2008, 65% of investors were investigating mortgage options as regularly as every 3 months. That figure has fallen to just 7%, with 42% now investigating mortgage options less frequently than annually (compared to 32% a year ago).
On average, landlords now review their mortgage product every 12 months, less frequently than the 10 months reported last quarter.
That said, compared to a year ago, there has been a small increase in the number of investors who are reviewing their mortgage options more regularly than every 3 months (a shift from 5% to 7%). Interestingly, these respondents are the same individuals who have moved funds into the more liquid assets of premium bonds and cash holdings, suggesting that they are preparing to invest.
Base Rate Expectation Remains Low
Unsurprisingly, no one expects base rate to fall further over the next 12 months. 17% of respondents expect it be at the same current all time low of 0.5% by the second quarter of 2011.
Furthermore, the pace of expected increase has tempered. 8.7% of respondents believe that it will have risen to more than 2.0% by Q2 2011 (down from 10% who expected such a rise last quarter) but only 1% expect the base rate to have risen to in excess of 3% - still well below the long term average of 5.0%.
According to the latest Young Index results, the average base rate expectation for Q2 2011 now stands at 1.14%, down from the 1.25% predicted for Q1 2011 in last quarter's Index.
Young Index: Headline Results for Q2 2010
• 95% of landlords intend to hold their residential property investments for the next 12 months.
• 55% intend to hold their assets for at least 10 years.
• 38% of landlords intend to retain their property investments for the next 20 years or more.
• The average period that residential property investors expect to hold their property investment assets is now 13.6 years.
• 47% of investors are considering purchasing additional residential property assets within London over the next 12 months.
• 16% of investors are looking at opportunities in the UK outside of the capital.
• 87% of respondents believe that London prices will be at current levels or higher by this time next year.
• For UK property outside of the capital, 47% expect prices to be at current levels or higher by this time next year.
• Landlords expect to see an average price increase of 2.5% by this time next year, up from the 1.48% predicted last quarter.
• The predicted 12 month outlook for UK property prices outside the capital turns from a fall to an increase for the first time since the credit crunch, at 0.2%. This compares to a drop of 1.0% predicted last quarter.
• The average base rate expectation for Q2 2011 stands at 1.14%, down from the 1.25% predicted in last quarter's Index.
• The majority of investors (55%) are holding property to finance their retirement.
• 52% of respondents believe capital growth to be more important than rental income or total annual returns.
• On average, landlords review their mortgage product every 12 months, less frequently than the 10 months reported last quarter.
About Young Index
Young Index is a quarterly gauge of market sentiment within the private rented sector, polling Young Group's client base of around 500 active investors/landlords who hold UK residential investment property.
About Young Group (www.younggroup.co.uk)
Young Group specialises in delivering Property Portfolio Management services to private and institutional investors. The Group's activity spans the entire investment cycle from identifying opportunities and financing their acquisition, through to managing the asset (tenanting through our Sunday Times' award-winning agency, Young London; furnishing through Young Furnishing; financing/refinancing through Young Finance), regularly reviewing the performance of the property holdings and advising on strategic direction, through to realising returns in the most tax efficient manner.
Young Group supports NORWOOD and CHILDREN with LEUKAEMIA, two charities doing valuable work that is particularly close to our hearts.
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