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Property Investment decision-making is a challenging task and the factors involved in such decision making vary significantly from individual to individual. However, well informed decision making should be based on reality about any property project and other related information obtained from most reliable sources.

UK-Economic & Property Outlook

The UK economy slowed a little in early 2015 but domestic demand growth remained relatively strong, helped by lower oil prices. Net exports continued to subtract from UK growth, reflecting sluggish growth in early 2015 in both the US and the Eurozone.

UK GDP growth has averaged 2.6% in 2015, which is again be the fastest in the G7, before easing slightly to around 2.4% in 2016. Consumer spending and business investment will be the main drivers of UK growth in these years. However, West Midlands (Birmingham) has seen an unprecedented GDP growth of 5.9% as compared to the national average of 2.6%.

Risks to growth are weighted somewhat to the downside in the short term due to international risks, including uncertainties relating to Greece and the recent turbulence in the Chinese stock market. But there are also upside possibilities in the medium term if the global environment improves and real wage and productivity growth rates accelerate in the UK.

London and the South East continue to lead the recovery, with growth of around 3% in 2015, but all other UK regions should also register positive real growth of around 1.8-2.5% in 2015.

Inflation seems likely to rise back towards its 2% target by the end of 2016, so the MPC may start to raise interest rates gradually from early next year. Businesses and households should plan for rates to be back to around 3-3.5% by the end of the decade.

The July Budget confirmed plans for significant further fiscal tightening to eliminate the budget deficit before the end of this decade, but with a somewhat slower and smoother profile of public spending cuts and around £7 billion per annum of net tax rises to be phased in by 2020. The impact of £12 billion of welfare cuts will be offset for some lower earners by the new National Living Wage.

House prices in the UK are expected to continue growing, with steady rises over the next five years across the country, the latest five year forecast shows.

Cumulative growth in UK prices will total a little over 18% in the five years to the end of 2019, according to the latest forecast report from real estate firm Knight Frank.

It says that while political risk for the prime London property market has fallen, affordability constraints will limit price growth in the near term, and predicts that overall UK rents and prime central London rents will rise 2.2% and 3.5% respectively in 2015.

However, the risk that UK interest rates rise more rapidly than expected or that the global economy suffers a notable slowdown in activity remain the biggest risks to the UK housing market.

It explains that the cumulative impact of recent and future reforms to Stamp Duty, mortgage interest relief for investors, Capital Gains Tax and IHT will take some time to work through the UK housing market.

‘Despite the pace of tax change, our view remains that it is interest rates and economic performance which will shape the outlook for prices and demand,’ the report adds.

In the UK as a whole the forecast predicts house price growth of 3.5% for 2015, 2.5% next year, 3% in 2017, 4% in both 4.0% 2018 and 2019, to a cumulative 18.2% over five years. It also shows that while London saw growth of 17.8% in 2014 this is unlikely to be repeated with growth of 3.5%, 4%, 5%, 5.5% and 5.5% predicted.

There is a similar pattern for the South East which saw growth of 10.6% last year, with the current forecast for 5% this year, 3% in 2016, 3.5% in 2017 and 5% for the two following years. The South West had growth of 8% in 2014 but this will fall to 4% this year, then 2.5%, 3%, 4.5% and the 4%.

The prediction for East Anglia is 4.5% in 2015, followed by 3%, 3.5%, 4.5% and 5%, in the East Midlands the forecast is for 3.5%, 2%, 2.5% and then 4% in both 2018 and 2019 while in the West Midlands it is 3.5%, 2%, 2.5%, 4% and 4%.

For the North East the forecast is even at 3% this year followed by 2% in 2016 and 2017, then 3% in 2018 and 3.5% in 2019. In the North West it is 3%, 1.5%, 2%, 3.5% and 3.5% while in Yorkshire and the Humber the forecast is for growth of 3% this year, 2% in both 2016 and 2017 then 3.5% in both 2018 and Wales saw annual price growth of just 1.4% in 2014 but this is expected to rise to 3% this year followed by 2% in 2016, 2.5% in 2017 and then 4% in both 2018 and 2019. Scotland is forecast to have growth of 3.5% this year, 2.5% in 2016, 3% in 2017 and then 4% in both 2018 and 2019.

This year is likely to see muted change in the prime property market in London, according to the forecast.

Prime central London saw growth of 6.7% last year but this is expected to fall to just 1% this year followed by a recovery to 4.5% in 2016, 5% in both 2017 and 2018 and 6% in 2019. While in prime outer London, which saw growth of 10.5% last year, the forecast is for 3% this year then 5.5%, followed by 5% in 2017, 2018 and 2019.

Rental prices are not expected to vary much with a rise of 2.2% this year, then 2.3% in 2016 and 2017 and 2.4% in 2018 and 2019. There is a similar prediction for the prime rental markets in London. Prime central London, which saw rental growth of 4% last year, is forecast to see growth of 3.5% this year, followed by 3.3% in 2016 and 2017, then 3% in 2018 and 2019 while in prime outer London which saw growth of 0.5% last year the forecast is for 4% growth this year followed by 3.3% next year, 3% in 2017 and then 2.8% in 2018 and 2019.

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