Investors set to take advantage of the income potential of the UK property market in 2016

A new outlook analysis report has suggested that investors will make it a top priority to take advantage of the income potential of the UK property market during 2016. This year, the average house price in the UK is likely to increase by 5%, however, the pace will be determined by any changes made to the interest rate.

There is likely to be a decline in the average returns derived from the commercial market to the tune of 7.5% but the agricultural market has downgraded its predictions for the next five years as commodity prices and farm profitability are likely to change for the worse.

With the current position of the property cycle, it will be possible for investors to unlock the value of individual assets as well as increase income and this is going to become a high priority for them.

Both the commercial and residential markets are likely to see a move to investing in regional markets in those areas where capital growth has still encouraged yields. The property market in the UK still has an element of doubt hanging over its head and this is based on the referendum on membership of the European Union because the outcome has certain implications for the commercial, residential and agricultural sectors. Investment will depend on how close the polling companies believe the outcome will be and that could lead to a pre-referendum slow down.

At the end of October house prices had increased by just 3.9% with transaction reaching a peak of 1.2 million per year which means that the forecast suggests that 2016 is likely to see a growth of 5% in house prices. In London, the high end of the market has become fully priced and taxed as a result of the changes to stamp duty but this could delay the trend rates associated with price growth.
The cost of borrowing has more of an effect on how the mainstream market performs and there is room for a short term increase in prices if the increase in the interest rate is held, but any increases will put a strain on affordability which means any price increase are relying on earnings and how the economy grows.

The private rental market is still expected to grow but the restraints put in place on tax relief along with the extra 3% in stamp duty charges for buy to let landlords could see a shift towards private rents which means investors could put more of their focus into other sectors of the market that produce higher yields such as key cities.

There is still an increased pressure for farms to produce an income but this is likely to see an increase in the availability of farmland, this could change if there is a threat to farm subsidies should the UK exit from the EU or if there is a significant change in capital tax treatment of farmland.

Farm incomes could change significantly as well as the value of land if the UK removes itself from the EU, however, rural estates are still attracting those buyers with a high net worth as they are protected moderately from the volatility surrounding commodity prices.

In 2016, the UK real estate will shift into another stage of the property cycle which means that it is entering some form of unknown territory as a result of the concerns surround the EU referendum, regulations that are coming in as well as a possible increase in the interest rates all of which will make this year significantly different to last year.

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Hopwood House are property investment specialists, with a large portfolio of UK property investments in the student accommodation and buy-to-let property markets.

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