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London leads buoyant Buy-to-let market outlook

Neil Young, CEO of Young Group, points out; Our latest figures show that the proportion of landlords who expect property prices in London to rise or remain static over the next 12 months has increased by 10% to 87%, from a period of relatively stable sentiment during the preceding three quarters.

For UK property outside London, a greater number of investors expect prices to fall during the next 12 months, so sentiment remains less positive than for the capital. However, there has been a significant increase in optimism during Q2 this year with those expecting stable or rising prices increasing from 49% to 70%. This is the highest figure since 2007, when Young Index began.

Average property prices in London are forecast to increase by 2.5% during the forthcoming 12 months.

For property outside the capital, the improvement in property price outlook means that the 12 month forecast has turned positive for the first time. Average prices are expected to increase by 0.2%, compared to the 12 month fall of 1.0% that was predicted last quarter.

This shows converging sentiment between residential property in London and the rest of the UK.

Interestingly, taking residential investment as a whole, investors increasingly attribute importance to capital growth. 55% of respondents to this quarters Young Index cite capital growth as more important to their investment decisions than rental income or total annual returns. This compares to 36% who expressed the same opinion a year ago.

95% of landlords questioned intend to hold their residential property investments for at least the next 12 months. Furthermore, 55% expect to hold their assets for at least 10 years and 38% of private property investors intend to retain their properties for the next 20 years or more, up from 12% a year ago.

Of the 5% of investors who identified that they may sell a residential property asset over the coming 12 months, the majority intend to liquidate the asset for cash, as opposed to reinvesting into a different asset class.

The average period that landlords expect to hold their rental properties continues to increase. On average, investors expect to hold for 13.6 years. This represents a significant increase on the 12 year hold period predicted last quarter and is up from a little over 10 years, reported at Q2 2009.

Perhaps a sign of changing sentiment towards saving and providing for retirement, 55% of investors maintain that their primary reason for holding residential property is that it forms part of their pension planning (up from 44% a year ago).

Over the past year, there has been a marked shift in the mix of additional asset classes that residential property investors hold. The number of investors holding tangible alternative investments and low risk investments such as cash and premium bonds has increased. Fewer investors now hold off-shore investments or stocks & shares.

The asset class top movers and shakers of the past 12 months is most easily demonstrated in figure 1, with tangible and low risk assets leading the charge.

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