For the second year, The Royal Bank of Scotland First-Time Buyer (FTB) Property Index ranks Britain’s postcodes by desirability and potential of return on investment, to reveal the top 22 areas with most potential for first-time buyers.
Lindley (HD3), on the outskirts of Huddersfield, in Yorkshire, currently the focus of major property redevelopment, tops the list.
Lindley (HD3) offers a winning combination of affordable existing properties, a strong supply of ‘new builds’ and excellent house price growth record combined with accessibility to the buzzing city centre of Leeds.
The study reveals five key factors in determining possible property hotspots, the most important of which is a below average ratio of house prices to local earnings.
The other four factors, found in all of the top 22 housing hotspots are: significant increases in new build supply, strong growth in house prices, urban regeneration and good transport links.
The RBS Economics Unit highlights that a robust housing market provides an optimistic outlook for first-time buyers -but variation at a local level means would-be buyers should do their homework.
The Royal Bank of Scotland First-Time Buyer Property Index, unveiled today for the second year running, reveals the most promising UK locations for people planning to get on the property ladder in the next twelve months. The Index identifies the critical factors, which help determine both the current desirability of an area and its potential to offer a return on investment. The index applies these crucial factors in order to identify the possible housing hotspots for first-time buyers.
The RBS FTB Property Index reveals that Lindley (HD3), on the outskirts of Huddersfield, is the top property hotspot for the coming year and is the ideal place for today’s first-time buyers to invest. Lindley (HD3), which is currently the focus of some interesting new build projects, offers relatively low average property prices at £138,886; compared to a national average of £193,489.
Lindley (HD3) offers an enticing climate for first-time buyers, with developments of new homes that will see the restoration of 19th century mills into luxury apartments. The area has also experienced 125 per cent growth in house prices over the past six years, which is significantly higher than the national average of 103 per cent.
One of Lindley’s particular strengths lies in its proximity to the lively and economically booming city of Leeds, which is under 30-minutes away by car. Over the past ten years, Leeds has transformed itself into a vibrant centre for Yorkshire and has the potential to benefit areas nearby as young professionals seek desirable locations within easy reach of employment in the city centre.
By analysing all of the factors affecting attractiveness and return on investment, RBS has identified Britain’s top most desirable property hotspots for first-time buyers:
|2||Bo’ness, West Lothian||EH51|
|6||Huddersfield, West Yorkshire||HD4|
|8||Nottingham City Centre||NG1|
|10||Reading Town Centre||RG1|
|11||Bethnal Green, East London||E2|
|12||Newham, East London||E15|
|14||Blaenrhondda, Mid Glamorgan||CF42|
|15||Rushmere St Andrew, Ipswich||IP5|
|18||Canon Pyon, Hereford||HR4|
The RBS research, conducted across Britain’s 2,800 postcode districts1, uses property data analysis and independent expert opinion (including 300 chartered surveyors and local estate agents) to examine a wide range of factors affecting potential future house price growth, together with current desirability for first-time buyers. The factors, when weighted and combined, provide an overall score for each area, allowing them to be ranked. The national top 22 table is comprised of the top two locations from each of the eleven regional tables. The regional tables consist of the top 10 areas in each region across Britain.
The Index reveals that for first-time house hunters hoping to seek out the latest bargains, the most crucial aspects in determining future return on investment are a low house price to high income ratio alongside healthy regeneration plans. The main factors determining the current attractiveness of an area are the number of planned or recent ‘new builds’ together with the quality of transport links to neighbouring towns, cities and major commuter routes.
Pioneering First-Time Buyers
Exploring areas that may not already be regarded as first-time buyer territory may seem like a leap of faith, but can often lead to the greatest potential for return. The Index once again highlights the need to look to future plans for regeneration and developments of new homes when selecting an area. Not only does this increase affordability in the short-term, but also provides the promise of improved amenities, an influx of new residents and potential for house price growth in the longer term. A famous example of this is the Docklands area of London, which underwent major regeneration during the 1980s, transforming it from industrial wasteland to desirable homes for thousands of city professionals.
Changes from RBS FTB Property Index 2005
Given the constantly evolving nature of the UK property market, as expected, the positioning of a number of the property hotspots we identified last year has fluctuated. For example, Openshaw, on the outskirts of Manchester, topped last year’s national table, but does not make the national top 22 this year. However, it is still in the running as a hotspot and appears in the North West regional top 10 table. Similarly, a number of areas highlighted in the 2005 regional tables now feature in this year’s national top 22, including areas around Southampton, Exeter and Burnley.
While there are many factors affecting the suitability of an area and its investment potential, the RBS FTB Property Index defines five key trends shared by many of the top 22 hotspots, easily identified by all first-time buyers looking to make a savvy investment. These factors provide a template which can be applied to any area, to help provide foundations for achieving longer-term property dreams.
1. Measuring Affordability
The price/earnings ratio4 of a local area compared to the national average is the most influential factor to consider when predicting future return on investment. This ratio is the average price of properties within an area, divided by the average earnings of the residents within that area. A lower ratio is ideal, such as Lindley’s at 4.4x.
2. Increases in ‘New Build’ Supply
An increase in housing supply for a particular area serves to reduce local property prices. Recent or planned increases of housing supply in an area are signalled by the prevalence of ‘new build’ activity.
3. Regeneration = investment opportunities Government funded regeneration schemes can contribute significantly to the potential for return on investment in an area. The Cardiff Harbour Regeneration Committee, for example, has had a fundamental effect on Cardiff’s number three position in the national league table. Similarly, Newham, as a hotspot for regeneration ahead of the 2012 Olympics, owes its position to plans for regeneration.
4. Longer term growth means larger rewards
House price growth within an area over the past six years is another important indicator of investment potential. Higher rates of growth are more favourable, as this indicates good momentum in the local property market. Huddersfield, HD4, experienced growth of 125 per cent in this period.
5. Commuting is key
When deciding if an area is going to be convenient to live in, as well as a sound investment, good transport links are paramount. A strong public transport infrastructure will save first-time buyers the expense of a car and free up money to help with those all-important mortgage repayments. Bo’ness, second in our table, scores well on this factor with links to Edinburgh and Glasgow.
Karen Snodgrass, Head of Mortgages for The Royal Bank of Scotland, comments: “This year’s FTB Property Index highlights the many opportunities available to those first-time buyers willing to beat a path for others to follow. Whilst we recognise that making your first step up onto the property ladder is never easy; we hope that the Index will provide a practical and inspiring resource. Once you’ve found the perfect location for your first home, our support continues with a range of mortgage options specially tailored to suit first-time buyers. For example, we are one of the only high-street lenders to offer the option to borrow up to 100% of the value of your new home; meaning that the dream of your own place could become a reality sooner than you’d hoped.”
The current housing market climate has actually proven quite positive for first-time buyers, with relatively stable interest rates and only moderate house price growth. The best indicator of recent optimism and stability is the latest data from CML (Council of Mortgage Lenders), which shows that 40,000 mortgages were advanced to first-time buyers in June 2006, the highest number for three-and-a-half years.
House price inflation has ticked up over the summer, but first-time buyers should be aware that conditions on a local scale vary significantly at the moment. House prices are growing robustly in some areas, hardly at all in others, and have fallen for some types of property in some locations. This means that they will have to be as careful as ever in their purchasing decisions. Any additional resources to support them in making more informed decisions at a local level about where to buy their first home is especially important at the current time.
Notes to Editors:
1. In-depth analytical research was conducted on behalf of The Royal Bank of Scotland by Mouseprice.com of an initial list of 2,800 Postcode Districts. Mouseprice.com also surveyed 300 Individual Estate Agents and Chartered Valuation Surveyors.
2 The Mouseprice.com RSR Indices apply index creation methodology using the repeat sales regression method. With this method house price growth is measured by observing selling prices of houses that have been sold more than once.
3 The ranking of the top 22 postcode districts was based on a scoring system. This scoring system allocates points to each postcode district across a set of various criteria. The top twenty two national list includes the top two districts from each of the main UK regions.
4 These estimated figures were calculated by extrapolating research data against 2004/5 statistics from the Higher Education Statistics Agency, which indicate that there are approximately 1,754,910 undergraduates in the UK. These estimated figures also assume a standard 30-week academic year.
5 The price/earnings ratio is the average price of properties within an area divided by the average earnings of people within that area. This resulting value shows house prices as a multiple of earnings; for example a P/E ratio of 8.7x means that prices are 8.7 times earnings.
The Royal Bank of Scotland offers deals specifically attractive to FTBs across a range of fixed, discounted or variable rate products. These options, alongside specific Professional and Guarantor mortgages, all aim to responsibly facilitate that first step onto the property ladder.
Available for interview: Karen Snodgrass, Head of Mortgages, The Royal Bank of Scotland Case studies and full report available on request. These include detailed regional breakdowns and tops tips on what to look for in an area. Example descriptive breakdown:
Area: Lindley, HD3
Category: HD3 runs from the Western suburbs of Huddersfield out along the M62
Description: This area of Huddersfield is seeing substantial investment in new property. Old mill buildings are being converted into apartments, meaning that there is a lot of property hitting the market at the same time, depressing prices in the area for the moment. In addition, there are a large number of traditional terraced and semidetached properties in the area. A first-time buyer can expect to pay under £80k for a new one bedroom apartment in an old mill conversion. Lindley is a pleasant area with good transport links, the M62 is less than 2 miles away, with easy access to Leeds Bradford and Manchester airport. There are good schools in the area, and the main hospital for Huddersfield is on the outskirts of Lindley. The PE ratio for Lindley stands at 4.4x well below national average of 8.5x. Lindley also boasts one of the higher average annual earnings of the Yorkshire hotspots at £31,796.