Predictions for the UK
property market in 2014
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Few property market experts would have predicted that 2013 would have been such a good year for UK property prices.
But as we enter 2014 there is only one question anyone with even a passing interest in the UK housing market want to know the answer to: Will the growth in house prices continue this year?
While the micro-property market of London continued to perform exceptionally well, with average house price growth of 11.6% compared to 2012, 2013 was a good year for the whole of the UK, where house prices rose across the board.
Historic UK house prices over time
Figures unveiled by the Office for National Statistics (ONS) in January this year indicated that house prices rose by an average of 5.4% in November 2013, compared to the same period in 2012.
Within this report we will look at what was behind the growth of 2013 and what we can expect to happen to UK property prices over the course of the next year. We will review historical figures, market statistics and expert predictions to offer, as best as possible, an accurate prediction of what will happen to the UK property market in 2014.
What was the cause of the property market revival in 2013?
Market stability and the green shoots of economic recovery will certainly have allayed many house buyers’ fears and encouraged them to reengage with the property market, either as buyers or sellers, or both. But credit should also be given to the government for stimulating the housing market.
The introduction of two separate schemes during 2013 certainly had a positive impact on the housing market. The first of these schemes was the Funding for Lending scheme. This scheme helped lenders lose some of their post-credit crunch apprehension about mortgage lending by offering them access to cheap finance, but only if it was passed on to mortgage borrowers and small business owners.
This improved the mortgage market for millions of buyers and encouraged activity in what had been a relatively stagnant property market.
The second scheme, which brought much needed first-time buyers into the property market, was the Help to Buy Scheme. The first phase of the scheme was introduced in April 2013 in England and saw the government offer a 20% equity loan to those looking to buy new build properties.
The buyers themselves needed just a 5% deposit. The second phase of the Help to Buy scheme, rolled out in October 2013, saw the Government extend the scheme to include existing homes as well, and guaranteed up to 15% of the property’s value on new and existing homes worth up to £600,000 in return for a fee from the lender. In addition, no interest payments are required from the buyer within the first five years of such an agreement.
These two initiatives have been widely applauded for kick-starting the UK building industry and generating momentum in the UK property market.
The other key factor behind the strong performance of the 2013 UK housing market is interest rates which remained at an historic all-time low. This means that lending has been relatively cheap and most British households were able to keep up their mortgage repayments in 2013.
In previous recessions, when interest rates continued to rise, property ownership and mortgage repayments became too expensive for many, repossessions increased and property prices crashed as a result. This shows how significant it was in 2013 that the rates remained low.
But what will happen to the UK property market in 2014? Below we look at some elements that could affect the market as a whole.
Average house prices by location q4 2013
Supply and demand will continue to affect house prices.
George Osborne admitted in February 2014 that we are not building enough new homes in the UK. The chancellor told a House of Lords Committee that he was“one of the first people to say we need to build more homes”.
During the same speech he alluded to “the historic problem that housing demand has outstripped housing supply”.
Despite these words, a housing shortage will remain the case in 2014. There simply is not enough building taking place in the UK to meet demand.
For example, in 1969 - 1970, 357,070 properties were built in the UK (this included private enterprises, council housing and housing association builds). In 2012-2013, just 125,000 properties were built which is less than at any time in the last three decades aside from between 2008 and 2010.House building may have increased from the height of the recession, but it is still at an all-time low.
This is likely to cause prices of existing properties to remain high for some time due to growing levels of demand, which is a great position for sellers to be in the current climate, although less helpful for those trying to raise the capital to buy.
This demand is most likely to be bolstered by an increasing population which will obviously place additional strain on existing UK housing stock. Statistics released by the Office for National Statistics in November last year suggest that the UK population is projected to increase by as much as 9.6 million over the next 25 years, with the total population projected to reach 70 million by 2027.
Nothing but a gargantuan government building works programme and significant investment in construction, something which has not been seen in the UK since the 1960s, would do anything to quell the demand for property outstripping supply.
This is not going to happen in 2014 and it will probably not happen by 2027 either.
Leading property institutions are fully aware of the disparity between housing supply and demand, and have suggested that it will inevitably have a significant impact on property prices. Knight Frank (7%) and the Royal Institute of Chartered Surveyors (8%) have gone on record as suggesting that property price rises are guaranteed; it is simply a case of by how much.
When property institutions such as these make such statements it could potentially affect property price growth. Alongside the momentum experienced in the latter part of last year, new borrowers entering the market due to the Help to Buy scheme and the supply/demand argument have been presented as the most obvious reasons to expect further growth in prices throughout 2014.
The effect of government schemes in the future
In November 2013, The Telegraph reported that leading UK estate agents such as Savills (15%) and Hamptons (9%) were notably confident about a marked increase in sales during 2014.
The influence of government initiatives will continue to be central to a positive period for the UK property market as a whole.
The government reported that by November 2013, over 2,000 people in total had put in offers on homes under the Help to Buy scheme. This equated to more than £365 million in new mortgage lending just a month after phase two of the scheme had come into operation.
Uptake and interest in Help to Buy among those buyers that qualify, but who perhaps cannot get a deposit, is likely to continue throughout 2014. Attractive financial incentives like these are attracting more buyers into the market, buyers who potentially wouldn’t have been able to afford a house purchase without such assistance.
The link between interest rate levels and the health of the UK property market is something that is undeniable.
Bank of England Governor Mark Carney gave a strong indication of how he sees the interest rate situation progressing in 2014 when he spoke publicly at the end of January this year.
“Even though employment is growing and unemployment has fallen….the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy,”
This position indicates that we can expect interest rates to remain unchanged for the year ahead. Stagnant interest rates will continue to mean that borrowing money is relatively inexpensive, further encouraging people to consider purchasing property throughout 2014.
Further growth anticipated in the buy-to-let market
The impact which the buy-to-let sector can have on the UK property market should never be underestimated either. 2013 was a strong year for this particular aspect of the property market, and hopes will be high that 2014 can continue in the same way.
During the first quarter of 2013 alone, a total of £4.2 billion was borrowed by buy-to-let landlords according to the Council of Mortgage Lenders. Factors such as people beginning to realise the emerging strength of the property market and investors that were willing to get involved in the sector are likely to have contributed to this figure.
However, recent evidence suggests that student property could rival the buy-to-let sector in terms of the strongest growth sector.
A 2014 student property report produced by Knight Frank indicated that student accommodation is performing notably well.
The report stated that:
“Total returns in the student accommodation sector have outperformed all other traditional asset classes.”
Further growth in 2014 is only likely to attract more investors into a sector that could continue to comfortably outpace its rivals across the year. If that does prove to be the case, investors will be keen to make their presence felt at the earliest possible stage, while the potential for minimal outlay and high yields is still apparent.
The UCAS End of Cycle Report for 2013 showed that the number of full time university students who were
accepted into the UK higher education system in 2013 rose by 6.6%.
Identifying where this type of growth can be found is precisely the type of factor which separates the good
investors from the very best.
The London effect
The London property market has been well documented as operating very differently from other regions of the UK. But it does not operate in a vacuum.
While London property prices are predicted to rise by 8% or more in 2014, this will have a knock-on effect in the home counties and the wider London commuter belt, where those priced out of London will increasingly look to buy – pushing up property prices there in the process.
Areas surrounding the capital, or close to good commuter links, are also set to benefit from the general rise. Windsor & Maidenhead, Brighton and Bournemouth have all cropped up as surrounding regions that are all primed for a strong 2014.
Is there a danger of a property market bubble?
Whenever property prices begin to rise quickly, as they did in 2013, many property investors worry that they are potentially caught up in a housing market bubble. Is this the case in 2014? It is difficult to judge accurately, but there are a few key points that suggest that we are not in the midst of a housing bubble.
Firstly, as mentioned above, demand continues to outstrip supply, particularly in desirable parts of the country. Secondly, we should note that the housing market is awakening from a period when there was very little activity; in a way the market is simply re-calibrating itself after half a decade of inactivity. This would naturally see prices rise.
Buyers and sellers have returned to the market and confidence is high, but property is still viewed by most people in the UK as a worthy investment – one they can and will make money on, at least in the long-term. The renewed interest which investors are showing in the UK generally is evidence of this, with the UK being cited as the leading European destination for foreign direct investment (FDI) in July 2013 by UK Trade & Investment (UKTI).
All the factors we have reviewed in the report indicate that buyers are better placed to make money from their property investments in 2014 than at any other comparable point during the last five years. This is encouraging people to return to the market and is stimulating additional growth.
The UK government has showcased their determination to support the housing market, lenders are more willing to lend, interest rates are stable and are likely to stay at historic lows for the year ahead and, crucially, demand continues to significantly outstrip supply.
Subsequently, we think it is safe to say that all the signs signify that the UK property market is in a very secure position and can be expected to remain so for the rest of 2014 and beyond. Regardless of whether you are a buyer, a seller, a potential investor or an existing landlord, property seems like a safe bet at a time when other investments are much more questionable.
About Select Property
Select Property is a property investment company, offering lucrative buy-to-let opportunities in Dubai and the UK. It is also the master sales and marketing partner to Vita Student, the first luxury student property brand in Britain.
We are committed to sourcing the very best products in our territories to provide the desired rewards to our customers, choosing only developments that deliver on price, payment, location, investment and security.
Select Property offers a complete service, from buying a property, to letting it out and then handing it over. As the buy-to-let sector both internationally and in the UK continues to grow, Select Property will be able to respond to the increasing demand for property investments, offering prospective landlords the best opportunities and high yields.
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