The post UK Economy – Current Outlook appeared first on amathus capital.

The UK Economy grew faster than expected towards the end of 2021, with gross domestic output rising by 1.3% in Q4 and 7.3% over the year. Gross domestic product continued its bounce back in January 2022, increasing by 0.8% and surpassing pre-pandemic levels for the first time.

This economic uplift was also evident in the property market, with annual growth in house prices hitting 14.3% in February 2022, the strongest pace since November 2004. According to Halifax, the average house price in the UK has risen by £27,000 in the last twelve months, the biggest one year cash rise recorded in over 39 years of index history. In London in particular, prices continued to be pushed higher in March by robust demand, limited supply and a strong jobs market.

There is, however, a general consensus that surging inflation coupled with rising interest rates will result in a cooling off of the economy and property market in the coming months. According to Barret Kupelian, senior economist at PwC, UK households are ‘entering a period where they will face a very substantial hit to their living standards with a smaller savings buffer than initially anticipated.’ The conflict in Ukraine has exacerbated inflationary pressures further, with another 30% increase to the energy price cap expected in October 2022 alongside rising food and other commodity prices. To counter this, the Bank of England has already raised interest rates three times in four months – with further hikes expected if the rate of inflation holds.

In terms of outlook for the rest of the year, much will depend on how the conflict in Ukraine unfolds and the how the supply/demand dynamic for energy is managed. While GDP is still expected to grow by 3.8% in the year, in the absence of a positive resolution to the conflict and a pause to the rising cost of debt, we are unlikely to see growth levels similar to those of 2021.

https://www.ft.com/content/24222949-ca7c-484a-903e-6e2f0a5b52d7

https://home.kpmg/uk/en/home/insights/2018/09/uk-economic-outlook.html

https://www.ftadviser.com/mortgages/2022/03/28/uk-housing-market-is-kaput-brokers-claim/

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Much has been made of Russia’s role in London’s property market following the tragic events in Ukraine. Almost all major news outlets have published pieces on the matter with titles ranging from ‘The rise and fall of Londongrad’ to ‘From Russia with cash’.

While Russian wealth has historically poured into London, since the depreciation of the Russian Ruble in 2014, Russians have become far less important to demand. According to Savills, only 1.4% of Central London is Russian owned and under 0.1% of Savills sales came from Russians in 2021. The story is similar on the commercial side, with Legal & General estimating Russian investors to account for just 0.3% of UK commercial real estate purchases since 2015. Any direct impact the Ukraine conflict will have will likely be confined to London’s super-prime market (£10m or above) where, prior to 2014, Russian wealth made up closer to 8% of demand. Even here, there is a general consensus that the gap will quickly be filled by buyers from Europe, the Middle East and Asia as London’s safe heaven credentials are further underlined.

Although the direct effects are currently limited, increased inflationary pressures at a time when basic household costs are already squeezed could lead to a general cooling off of the property market. There is also sentiment to consider with many buyers and sellers pausing for reflection as the situation unfolds. While this uncertainty will likely be short lived, the sudden and drastic increase in transparency of ownership requirements being introduced by the UK Government could have a slight dampening effect on prime transactions in the long term.

The full effect on UK property will ultimately depend on whether there is further escalation or not and at the time of writing this hangs very much in the balance.

https://www.economist.com/britain/2022/03/05/the-rise-and-fall-of-londongrad

https://www.knightfrank.com/research/article/2022-02-28-how-will-the-ukraine-conflict-impact-the-uk-property-market

https://www.lgimblog.com/categories/markets-and-economics/real-assets/ukraine-conflict-uk-real-estate-impacts/#_ftn1

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North London extends from Clerkenwell and Finsbury to Greater London’s boundary with Hertfordshire. From the more built-up areas including Islington and Kentish Town to the desirable open spaces around Hampstead and Hadley Wood, North London offers a wide range of real estate options for all.

Its emergence and popularity owes much to the excellent transport links served by three major underground lines and the overground, as well as King’s Cross and St Pancras stations. Taking in the bustle of Angel, the green spaces of Alexandra Palace and wonderful views of the city from Highgate Hill, it also offers some of London’s most desirable neighbourhoods. Indeed, four of the six areas listed by the Times as the best places to live in London in 2021 are in North London. One of them is Muswell Hill, which benefits from high achieving schools, an enviable high street, beautiful houses and surrounding parks. Another is Primrose Hill which is described as ‘an urban village that looks like a Wes Anderson film and is in walking distance of the West End’.

In light of the above, many parts of the North London market provide good liquidity and high yields for buy-to-let landlords. In the last quarter of 2021, residential yields in Camden, Haringey, Barnet and Enfield were 3.9%, 4.1%, 4.2% and 4.5% respectively, compared to an average of 3.6% across London and 2.9% in Zone 1. Yields are higher for commercial property and range from 5.1% – 8%.

It also provides a wide range of opportunities for value-add growth strategies. Over the last 20 years, the growing demand for space from workers wanting easy and affordable access to the city has given rise to a dramatic increase in property development and repositioning in the area. The conversion of larger Victorian homes and non-prime commercial assets to multi-unit housing is one example of this and something we expect to continue as we emerge from the pandemic. While the bulk of this is aimed at mid-market residential developments, higher end areas such as Beech Hill and Hampstead offer similar opportunities for the development of luxury apartments. Repositioning across both sectors has allowed many investors to enjoy internal rates of return of over 20%.

The AmCap-RE Greater London Fund holds a substantial number of assets in North London, focused on 1-2 bedroom mid-market residential and commercial properties. The average rental yield of its portfolio is 4.9% on fair value with a 95% occupancy rate. In addition, the fund pursues value-add growth strategies in North London through the refurbishment and repositioning of assets. These include the conversion of council and commercial assets to residential and the development of luxury homes.

North London has served the fund’s value and growth strategies very well over the years and management intend to maintain their network and competitive advantage in the region in the long-term.

https://www.thetimes.co.uk/best-places-to-live/london

https://propertydata.co.uk/

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The Borough of Elmbridge is often described as one of the best places to live in the UK. Sitting just 17 miles southwest of central London, this leafy corner of Surrey has been the preferred destination of many city workers and footballers since the mid-1990s.  Indeed, Esher, Cobham, Walton and Weybridge make up the ‘Surrey golden-triangle’ and are home to some of the largest and most desirable modern built houses in the country.

One of the main appeals of Elmbridge is its proximity to London whilst being surrounded by the Surrey countryside. It also offers easy access to both Heathrow and Gatwick airport, some of the country’s top schools, boutique shopping, fine restaurants and quaint village settings. It is particularly well-known for its beautiful landscapes, large homes (the average house has 6.1 bedrooms), generous gardens and celebrity residents. With Chelsea FC’s main training ground in Stoke D’Abernon, it’s no surprise that Cobham and Oxshott hold the title for the ‘villages with the most footballers in England’.

These factors have made Elmbridge the most expensive borough outside of London, with 37% of homes priced at £1m or more and the average price of property in Oxshott standing at £1,432,272. Last year Zoopla declared Elmbridge the third best place in the UK for house price growth over the last 20 years, with house prices having increased almost fourfold since 2000. In the last 10 years alone – since May 2011 – property prices have increased in the borough by an average £220,300. On top of this long-term growth, the last two years have seen the area benefit from many homeowners reassessing how and where they want to live – a trend we expect to continue.

It is also a solid rental market, offering competitive yields, long term tenancies and minimal vacancies (in addition to footballers, many tenants in the golden triangle are international corporate executives who have been relocated on a 3-4 year basis).

The AmCap-RE Greater London Fund remains heavily invested in the Elmbridge residential market, focusing on 4-6 bedroom high end houses and quality long-term tenants. The fund’s properties in the region have an average yield of 3.5% on fair value, average tenancy of 2 years + and a 95% occupancy rate. This approach has served the portfolio’s value strategy well, providing steady returns through the turbulence of 2008, Brexit and the pandemic. As the uncertainty surrounding more recent events is put behind us, the fund intends to pursue more development opportunities in the area (amongst others) to complement its income portfolio.  

Our senior executives have been investing in this market since the early 1980s and management intend to continue leveraging this experience for years to come.

https://www.foxtons.co.uk/living-in/elmbridge/

https://www.zoopla.co.uk/discover/property-news/property-hotspots-top-areas-for-long-term-house-price-growth/

https://www.thetimes.co.uk/article/a3e94a5e-8be6-11ec-b5fe-7fe087ff87b5?shareToken=3c12924b5e5f38b8848e6a180600019c

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