Find out what’s happening in the property investment arena both in the UK and internationally
Multiple new reports confirm UK property market is back, stronger than ever and here to stay
May 22, 2014Article by Ray Withers
A new report from the Confederation of British Industry (CBI) reveals UK property prices are on the up and up for 2014 and 2015. This puts fears of a bubble on the backburner and confirms the UK market is back, strong and here to stay.
According to the report, home values across the UK are set to jump from an average of 3.6% last year (2013) to 8.2% in 2014. The leading business body also predicts a rise of 5.1% in 2015, but also predicts interest rates could rise.
Independent research organisation, the National Institute of Economic and Social Research, made a similar prediction of 7.8% for 2014 and 4.2% for 2015.
Double digit price hikes put housing back under the spotlight
John Cridland, director-general for CBI, explains: “Housing has come back under the spotlight as annual house price inflation figures have reached double digits on some measures. While housing transactions are still running almost 30 per cent below their last peak in 2006, they are picking up steadily.”
On the subject of uneven prices across the country, Cridland said an influx of overseas investors is partly responsible for steep rises in London prices. He comments: “Although London prices have risen twenty-five per cent above their 2008 peak, this has in part been fuelled by foreign cash buyers. Outside London prices remain around two per cent below peak figures, with an even greater difference when you move outside the South East.”
The CBI also called on the Government to make a “renewed push” to build more properties to meet the urgent need for new homes. Cridland adds: “We have to remain alert to the risks posed by unsustainable house price inflation and the Financial Policy Committee is poised to act when necessary.”
Typical home worth 7.3% more than a year ago
According to Zoopla, the typical cost of a home in England is now £262,770, while LSL Property Services puts the England and Wales price average at £262,113, up a further 0.5% in April 2014. Generally, the typical home is now worth 7.3% (£17,877) more than it was a year ago.
On the subject of interest rates, CBI predicts the Bank of England’s Monetary Policy Committee to increase the official cost of borrowing to 0.5% during the final quarter of 2015 and economists at IHS Global Insight agree.
Howard Archer, chief UK economist at IHS Global, comments: “While an imminent interest rate hike remains unlikely, opinions within the MPC are likely to become increasingly diverse from now on about exactly when monetary policy should start to be gradually tightened. The more hawkish MPC members may well start to favour a first, small, rate hike before the end of 2014. We currently maintain the view that interest rates are still most likely to start edging up in the second quarter of 2015, although there is clearly a growing likelihood that the Bank of England could act before then.”
More than 50% of homes in UK to be rented by 2032
As house prices rise and the market strengthens, so does the private rented sector (PRS). A consecutive new report from The Intermediary Mortgage Lenders Association (IMLA) reveals that, for the first time in 60 years, over half the homes in the UK will be rented by 2032.
Since 2007 the PRS has grown from 14% to 18% of households, while ownership has dropped from 68% to 64% and social renting has also fallen. Buy-to-let mortgage financing made up just 420,000 (32%) of the additional 1.31 million homes in the sector since 2007, with the remainder made up from cash buyers, commercially-funded purchases and properties rented out by the existing owners.
The upwards curve of the PRS also looks set to stay, with demographic projections pointing to rapidly rising housing demand and the UK population expected to reach 67.8 million by 2020 and 75.3 million by 2035.
Homeownership is already lowest among younger generations and this trend is moving up the age brackets, as more people struggle to buy in their 30s and even their 40s. Between 1991 and 2012/13, homeownership among 16 to 24 year olds dropped from 36% to 11%, while among 25 to 34 year olds it fell from 67% to 40%.
“A proper joined-up strategy” for the housing market
Peter Williams, executive director for IMLA, comments: “Growth of the private rented sector has been from a historically low base and has been fuelled by strong underlying demand. If current trends continue then demand for private rented property is likely to drive further expansion and increase the burden on our already-overstretched housing stock, at a time when first-time buyers are also feeling the pressure of new mortgage regulations. The inescapable conclusion is that we need a proper joined-up strategy to adequately serve owner-occupiers, tenants and landlords; and put an end to key forces pulling in opposite directions.”
The affordability gap between renting and owning is also at its widest since 2006. New 2014 figures from Countrywide show that for every £1 the average homeowner (with a 10% deposit) spends on mortgage payments, a tenant in rented accommodation is paying just 93 pence. This is a 3 pence drop from just 96 pence in the pound last year. This means it is now cheaper to rent than to buy and, with long-awaited wage rises predicted to overtake rent increases in July this year, pressure on living standards will start to relax for the first time since 2009.
Investor confidence in UK property more than trebles in past year
Ray Withers, CEO for Property Frontiers, says: “UK property is a solid mainstay to any portfolio. We offer investments from around the globe and, while we have noticed huge investor confidence in international emerging markets over the past year, our investors continue to steadily add UK stock to their assets.”
He continues: “Sentiment towards UK property is still by far the highest and this asset class has seen positive sentiment more than treble in the past year. This is partly fuelled by predictions of interest rate rises, as investors are snapping up prime UK property before the expected interest hikes. All in all, the figures released from these new reports just go to further prove the UK property market is solid, dependable and here to stay.”