UK Property Trends: Micro-Homes, Equity Release and the Homeowner Gap
Micro-homes see increased demand in prime central London
According to the Independent, “microflats” in London are attracting investors as millennials have been priced out of the traditional housing market. The apartments, often situated in “co-living” developments such as The Collective, have attracted over £1bn from investors.
Microflats in the co-living market now account for 5-10% of Britain’s “£25bn build-to-rent private rental sector.” For first time buyers, however, while the average price of a London micro-home sits at £279,000, getting a mortgage can be challenging.
Some banks refuse to lend on properties smaller than 30 square-metres due concerns regarding capital appreciation, with fears seemingly rooted in past performance. Smaller homes (those under 37 sq m) rose in value at a slower rate than homes larger than 37 sq m, 6.9% and 8.7% in the last three years respectively.
Across the globe, some micro-homes are designed with intention and purpose - with “bespoke joinery, sliding partitions and moveable furniture to make the most of limited space.” Yet others, which are only slightly larger than a prison cell, are being investigated.
Areas with the highest number of micro-homes include Liverpool, Leicester and Bristol.
This trend appears to be split into two parts; cost efficiency and co-living. The more traditional motivation to downsize is, of course, to be nearer to a city’s bustling centre, whilst also saving money. For others, downsizing into co-living spaces is a way to be part of a community, whilst simultaneously experiencing a luxurious lifestyle. The Collective, for example, places significance on convenience - from “all-inclusive billing, concierge service and room cleaning.”
Motivations aside, there has been a growing demand for downsizing - yet as we discovered in our interviews, the trend has been around for some time.
Equity release: A cross generational housing ladder?
According to the Equity Release Council, as retirement income shifts away from final salary schemes and towards defined contribution schemes, “millions of workers will run out of money in retirement.”
A contribution of 8% throughout an average worker’s career would only amount to a fifth of the pension available in a defined benefit scheme. However, while cash might be short, equity is not.
In fact, “Total homeowner equity in England reached £2.6 trillion in 2016, of which £1.8 trillion belonged to households with a homeowner aged 55 years old or over.”
As a result, equity release- which is a way to liquidate the value of your home without having to sell it, is growing in popularity. In the second quarter of this year, £700m was lent to homeowners who were borrowing money against the value of their home.
Homeowners have the freedom to spend the money however they like, and the loan is typically repaid “using funds from the sale of the house after the owner dies or goes into care.”
However, not all equity release transactions are being used to fund retirement lifestyles. A report from Retirement Advantage has highlighted that relatives using equity release are helping approximately 13 first time buyers onto the housing ladder each week.
One in ten adults own second homes, but four in ten own no property
According to Resolution Foundation, the number of “multiple home owners grew by 30% between 2002 and 2014.” However, homeowner growth has not been equal. While approximately one in ten adults owns a second home, four in ten are yet to purchase their first.
The number of individuals who have not yet purchased their first home has increased between 2002 and 2014. Clearly, the housing market gap is widening.
Those most likely to own multiple properties are typically aged between 52 and 71. Interestingly, individuals born after 1981 own a mere 3% of all seconds homes across the UK.
Technology hubs see property prices grow above national speed
Technology hubs across the country have seen some of the most dramatic rises in property prices. In creating 100,000 employment opportunities within the digital sector, cities like Cambridge, Reading and Oxford are seeing house prices outgrow the national speed.
Cambridge, for example, saw house prices increase by 43% since 2012, while the UK increased by 31% on average. Earlier this year, our investment team recognised Cambridge’s potential and secured PM SPV 84, a one-bedroom semi-detached opportunity in St. Neots, which boasts a projected return of 10.15%.
The research also highlighted that Manchester and Liverpool are becoming digital hotspots too. Home to Liverpool’s “Tech City,” the Baltic Triangle holds the potential to compete with London’s “innovation, investment and reputation,” according to Aspen Woolf.
The city’s magnetism, growth and potential are just some of the reasons our Daniel House opportunity has proven to be so popular, raising over £315,000 in its initial tranche. The second tranche is now live.
By Jenna Kamal