Bear or Bull?


What’s in store for the unpredictable property market this year?

With the UK economy seemingly on the right path to recovery, unemployment falling and wages rising, not to mention record-low mortgage borrowing rates and housing initiatives (such as the Help to Buy scheme) there are a number of factors that have contributed to the strong bull market which we saw over the past year in what has been a rather buoyant housing market.

Sealed bids, soaring property prices, the London property boom witnessed in the early part of 2014 has cooled somewhat to more sustainable levels in recent months, but the housing market still remained strong even towards the tail end of 2014.

Residential U.K. property prices rose by 12.1% in the year to the end of September, the latest figures from the Office for National Statistics (ONS) show.

The data provided by the ONS reveals that the rate of growth increased from 11.7% year-on-year during the previous month, led by London, where the average price of a home rose by 18.8% year-on-year.
The figures from the ONS showing a strong annual uplift in average property prices provide another display of strength, particularly in the sub £2 million market which performed particularly well over the past year.

What’s next in 2015?
While the housing market continued to recover in 2014 with prices soaring in some parts of the capital and record low mortgage borrowing rates fueling demand, the market does look set to cool further in the coming months of this New Year as the bear rears it’s head once more.
Talk of a rise in interest rates, stricter mortgage lending conditions, caused in part by the implantation of the Mortgage Market Review (MMR) in April last year, along with a looming general election, with housing expected to be high on the political agenda. When you combine all of these factors the result is a residential property market rife with uncertainty. This is especially set to be the case during the first half of 2015 given that the outcome of the election in May is still unclear.
Signs of buyer uncertainty are already starting to appear, as reflected by a recent marginal drop in the rate of transactions in recent months, on the back of mortgage lending which has been more measured compared to a few months ago.

The latest figures from the British Bankers’ Association show a sharp slowdown in mortgage approvals, and some lenders now reporting a fall in lending volumes, suggesting that lending may calm further in the coming months as tougher afford-ability measures deter, or prevent, some would-be buyers from purchasing property.

Modest growth
With market conditions slowing, any property price growth in 2015 is broadly expected to be far more moderate, as the market enters a fresh phase of sustainable stability, amid lower levels of activity.
“With housing market activity clearly off its early-2014 highs, we suspect house prices will generally rise at a more restrained rate over the coming months,” said Howard Archer, an economist at IHS Global Insight, who expects property values to rise by around 5% in 2015.
The Halifax projects that the general election and rising interest rates will create a ‘better balance’ in supply and demand for housing. Consequently, the mortgage lender expects UK home prices to increase by a ‘more moderate’ 3%-5% in 2015, down from growth of about 8% in 2014 said Martin Ellis, the Halifax’s housing economist.

“A further moderation in house price growth is likely in 2015,”

Window of opportunity

The fact that annual property prices are rising at a lower rate may alarm some people, but it shouldn’t.
A few months back property prices were racing ahead at an unsustainable level, leaving the government and the Bank of England with little alternative but to try and take the heat of the market by introducing various measures, such as stricter lending conditions, to intentionally slow demand for property, and in turn home prices, helping to keep interest rates at a record low and boost afford-ability.

What’s more, one of the main drivers fueling price growth across many parts of the country over the past 12 months has been a lack of housing stock on the market, but developers are working hard to significantly increase the supply of new homes being developed, with the volume of new home registrations reaching its highest level since prior to the financial crisis in the third quarter of 2014, the latest figures show.

Alan Muse, RICS Director of Built Environment, commented: “Unprecedented housing demand, the bounce back from a very deep recession and government’s commitment to invest £36 billion in over 200 infrastructure projects is driving much-needed confidence across the industry.” The result: we should see a rather muted market in the first half of 2015, which should favour the opportunist purchaser by offering some room for negotiations – a genuine ‘window of opportunity’ to strike a good value for money deal - on certain properties in some areas, especially in the run-up to the election. Conversely, it could be argued that the election may cause some people to sit on their hands and await political certainty before listing their property for sale, but savvy vendors could take advantage of this time when there are fewer homes on the market, generating greater competition.

Despite some downward pressures, the market is likely to be helped by an ongoing economic recovery, lower unemployment and still record low mortgage rates, not to mention a severe housing shortage, because despite the upturn in house building levels there are still nowhere near enough properties being developed to meet high demand from national and international buyers.

“Coupled with rising employment and the imminent return of real earnings growth, consumers are the most confident in making a major purchase since mid-2007,”

said Capital Economics property expert Matthew Pointon.
Once the uncertainty of the election is out of the way, market conditions should improve and we could very well witness a post-election ‘mini-boom’, with property transactions and price rises picking up speed once more, supported by record low mortgage rates.

As in 2014, activity among property investors will contribute significantly to overall demand, with buy-to-let set to continue to be a highly popular investment choice due to a combination of rising prices and a squeeze on lower earners real incomes, preventing them from buying property and being forced to rent instead, driving up rental demand further in the process.
We might not see the rapid surge in home price growth that we experienced in the early part of 2014, but improved economic foundations mean that the market is more stable and over the medium to long-term, prices should continue to steadily increase.

Beyond 2015
With the UK economic recovery continuing to gain traction and with positive real wage growth increasingly likely over the next few years, there does appear to be scope for sustained property price growth beyond 2015.
The average price of a home in London is predicted to increase by 39% by 2020, outstripping the average of 30% in England and Wales, according to a comprehensive forecast made by Rightmove and Oxford Economics, which takes into account both asking and sold prices, surveyor valuations and analytics from the Oxford Economics’ forecasting models.

Miles Shipside, Rightmove director and housing market analyst believes that “understanding the path” of future house price growth is a key element of “UK economic strategy and decision making”, and very few people would disagree with him.