How Do You Predict the Future Value of Property?

Discussing property prices, where they currently stand and what will happen in the future is arguably a British obsession.

It seems like hardly a day goes by where the direction of house prices isn’t mentioned in mainstream media.  Even in your own social circles, you may find the topic often gets talked about (whether you like it or not!).

However, working out what may happen even in the short to medium term is not an exact science.  There’s a huge range of variables involved that can influence where things may be heading for better or worse.

As experienced homebuyers and auctioneers, the team at Property Solvers conduct many thousands of professional home valuations every year.

In the following article, we run through a calculation that you can use to broadly predict the future of property prices in your local area.  We also look at the “micro” and “macro” factors that can affect valuation levels.

Calculating the Future Value of Your Property

The property market constantly evolves and accurately predicting what will happen is next to impossible.

Nonetheless, you can get a general idea by looking at historical growth rates and applying them to the future.  To use the example of England and Wales, the graph below shows average prices over the last 4 decades.

We have also plotted the annual growth rate as means of taking a look at the overall trends over a longer period of time.

The next stage is to take this average growth rate and multiply it by the current estimated value of your property.

Let’s say the average growth rate over the last 10 years in your area has been 4%.

Assuming this growth rate continues, you now want to know what prices could be in 5 years’ time (from now).  Your property is currently valued at £250,000.

The idea is to multiply 4% by 5 (years) and add this percentage to the £250,000 – in other words £300,000.  Here’s the calculation:

Please note…

This is a crude way to assess future house prices and the trends are not usually consistent.

Average property prices can also be heavily skewed by low sales volumes.  Similarly, we wouldn’t recommend relying on the data if a handful of properties in a given area sell for above-average prices or under market value (at auction for example).

Much will also depend on how far into the future you’re looking to value your home. It stands to reason that the shorter the time period within which you’re predicting, the higher the likelihood of being accurate.

It’s also important to take a look at the “micro” and “macro” factors that tend to stay constant – regardless of whether the market is strong or weak…

“Micro” Factors That Can Affect the Future Property Values

To start, let’s look at the “micro” side of things – in other words, the more localised and individual factors that can affect house prices…

The Condition of the Property

Like most things we make use of every day, properties are subject to wear and tear (depreciating as a result).

A well-looked-after house or flat is more likely to hold its value relative to one that undergoes neglect or simply does not get worked on whilst you own it.

Most homeowners look to refurbish their properties every 10 to 15 years depending on how “lived in” it is.  This may need to happen more frequently if the property is tenanted.

Also, if your property has issues that could potentially render it unmortgageable, it can be a costly exercise to bring the value back up to the level of the local market. This can include flooding risk, Japanese Knotweed or structural problems.

Extensions or Loft Conversions

Provided it’s undertaken legally – i.e. through seeking planning consent or Permitted Development Rights – this is an excellent way to lock in solid value into your property.

Other savvy property owners choose to maximise the space they already have to add value. Examples can include:

• Changes to the property layout (such as knocking through to create a kitchen/diner)
• Garden upgrades such as modern landscaping
• Repurposing one room to become another (such as changing a study into an additional bedroom)
• Improving the property’s overall kerb appeal
• The inclusion of new features, such as smart storage

Many sellers then sell or remortgage to release the locked-in capital in the property.

Energy Efficiency

Related to the above, having a high Energy Performance Certificate (EPC) rating is becoming ever important.

Indeed, it’s likely to have an influence on mortgage and remortgage valuations as well as future buyers’ decisions as we move more towards a more energy-efficient and carbon-free society.

Proximity to Local Amenities / Infrastructure / Transport

Living close to supermarkets / shops, restaurants, green spaces, coffee shops / pubs / bars, healthcare / dentists, sports centres and other recreational activities can all have a beneficial effect on your home’s value.

On the other hand, proximity to wind farms, mobile phone towers, transport links, air and/or noise pollution tend to lower the desirability (and therefore prices) of homes up for sale.

Good School Catchment Area

Properties close to in-demand schooling often see consistent price growth – irrespective of external circumstances.

You can check local schools by Google searching Ofsted reports and looking out for “Outstanding” and “Good” ratings within a mile or so of your street.

Local Economic Growth

Combined with the factors described above, a healthy local economy will always attract more eager homebuyers and fuel higher prices.

Note that local employment levels are not always an influential factor provided there is good commutability.  That’s why property prices in well-connected suburban towns close to the UK’s largest cities such as London, Manchester, Sheffield and Birmingham tend to hold their value.

Safe Neighbourhood

Demand for property, and therefore overall valuations, tends to be lower if there’s a noticeable presence of crime or other forms of anti-social behaviour.

In a similar vein, noisy or disruptive neighbours can end up being a long-term issue – particularly if complaints to the authorities are not going anywhere.

Tenure

If you own a flat or another form of leasehold property and the unexpired lease term is approaching anything close to 80 years, it’s worth exploring extension costs.

The lower the unexpired lease length is, the bigger the impact on value.

Decorative Appeal / Uniqueness of the Property

Of course, it’s entirely up to you how you decorate your property and we all have our own personal tastes.  However, it’s worth bearing future saleability in mind and how much the overall aesthetics would appeal to future buyers.

Similarly, quirky properties may struggle to sell – particularly in a down market.

Limited Supply (Locally)

Often, especially in areas with high demand, any proposals for new housing face local objections.

Although it has its own wider socioeconomic impacts, the phenomenon known as NIMBYism (“Not in My Back Yard”), results in constrained supply and, therefore, buoyant property prices.

“Macro” Factors That Can Affect the Future Property Values

Let’s now take a “high level” view of the broader factors that can benefit and hinder property price growth…

The UK Housing Market in General

You should stay up to date with market predictions regarding the property market and its likelihood of growth or stagnation.  Try to take in a broad range of opinions.  We often find publications like Financial Times and The Economist offer fairly balanced viewpoints.

One theory is that there’s an 18-year cycle of recovery, growth and recession. Major explosive growth is often followed by a crash. It may be worth working out where we currently are within this pattern in order to predict what is coming next.

Economic Growth

Property prices generally grow when there’s low unemployment, rising income, consumer confidence and general positivity about the economic climate.

Conversely, when the opposite effects occur, home sellers tend to struggle more as more buyers batten down the hatches and only move forward if it’s a bargain.

Interest Rates and Mortgage Lending Practices

Generally, monthly commitments after buying a property with a mortgage tend to be lower than paying rent.

In an environment where interest rates are rising, however, fewer people become able to afford to get on the property ladder.  The risks of more homeowners falling into mortgage arrears also rise.

In response to the financial crisis of 2007-08, the Mortgage Market Review resulted in more responsible lending criteria such as higher deposits and more thorough “stress-testing” procedures.

Whilst arguably better in terms of controlling market speculation and minimising the risk of homeowners falling into negative equity, it has meant that housing has become less accessible for more people.

Affordability / House Price to Earnings

Very much related to the above, there’s a certain limit on how much most people can pay for property at any given time.

The main measures are the house prices to income ratio and how much of people’s take-home pay is consumed in mortgage payments.

Affordability issues tend to appear first in London and the South East, followed by a ripple effect across the country.

“Black Swan” Events

These are out-of-the-blue occurrences that can unexpectedly impact a country’s economy and therefore the housing market.

Recent historical examples include the Brexit fallout and the COVID-19 pandemic.

The UK’s Under Supply of Housing

An ongoing political hot potato, the fact remains that there are simply not enough homes being built in the right areas across the country.

Much of the issue relates to planning alongside the huge risks associated with delivering scaled development projects successfully.

Although government-led initiatives such as Help to Buy have helped somewhat, annual targets are continually not met. The result is that sustained house price rises over the long term are likely to remain.

Frequent RICS Surveyor Down Valuations

Regardless of where the market is at, it’s long been the case that estate agents often exaggerate asking price recommendations.  Telling home sellers that their properties will fetch higher prices than what is actually the reality is more likely to win them instructions.

Whilst this often means properties end up lingering on the market longer than they need to, in good times, buyers may be willing to pay those kinds of prices at the outset.

However, time and time again, we see surveyors / valuers having a different viewpoint.  The result is often that the property returns to the market or there’s some kind of renegotiation to a more realistic level.  Other times, the seller withdraws completely.

Household Growth

It’s also worth keeping an eye on wider population growth both domestically and from those coming from abroad.

Larger influxes of people looking to build a life in the UK often boosts demand.  The result is an overall positive influence on house prices.

Always Use HM Land Registry Data to Assess Future House Prices

Although the various house price calculators and estate agency estimations have some validity, nothing beats using HM Land Registry in terms of accuracy.

These days, as well as the portal itself, you can access the same data completely free on a range of portals.  These include Rightmove, Zoopla, Mouseprice and Net House Prices.

It’s also worth noting that commercial, industrial, land and other buildings have their own unique valuation methods which differ from residential property.

Thinking of selling? Contact Property Solvers today…