2014 PROPERTY MARKET FORECAST
BY MARIO APOSTOLOU
It is now evident that the economy in the UK is finally out of the recession with expected growth in the economy of almost 2% before the end of 2013. Statistics show a stable increase in the retail index, 10.2% increase in car sales, less unemployment etc.
Additionally, there is now more fluidity as well as relative growth in the property market. Gross UK mortgage lending was £16.2bn in September, 41% compared to September last year. Gross lending for the third quarter of 2013 was £49.3 billion. This represents 17.6% increase on the second quarter of 2013 and 32% increase on the third quarter of last year. Mortgages are currently at their most affordable level for some time, due to low interest rates (still at historically low levels) and a desire from lenders, having been encouraged by the government, to appeal to borrowers in a difficult marketplace.
Cheaper mortgage rates mean total payments remain low relative to income, which is encouraging as it means those getting on the property ladder for the first time are not over stretching themselves.
The governor of the Bank of England is now broadly positive about the UK economy suggesting, we can now be sure that the glass is half full and stressing that inflation is now as low as it was since 2009. The economy is growing at its fastest rate for 6 years. He even suggested 2.8% increase in the economy for 2014 (rather conservative I say, as there is strong evidence that the economy will grow beyond 3.0% in 2014) It is very encouraging that every month, now 60,000 new jobs are created thus reducing the number of unemployed people and the corresponding burden on the government’s finances.
In a recent study by Deloitte it became apparent that high-skill and knowledge-based sectors placed London as the world’s leading city in 12 of them, employing 1.5 million people; this placed London ahead of its nearest rival, New York, which has 1.2 million working in these sectors.
London is unique in the breadth and depth of these high value sectors and the research finds that London’s economy is finally diversifying, with growth in creative, digital and media businesses more than compensating for the decline in financial services employment.
It is anticipated that there will be a minimum net growth in London employment of over 300,000 by 2020, of which at least 100,000 will be in high-skill sectors. These figures translate into 300,000 additional residential units for the employees and their families, as well additional office space for all these people.
As a result of the above, a boom in property transactions is imminent, for the year 2014 and onwards.
In fact it is safe to say that the housing market activity will enjoy double digit growth in the next three years, with transactions back above 1m by 2016. Please remember that prior to the financial recession back in 2007 transactions were running at 1.2m per year.
Transactions will soon be over 50% higher than they are today by 2016, assuming no other major and/or drastic economic events push the recovery off course.
First-time buyers are now finding it easier to get a mortgage, as the Government’s Funding for Lending pushes down rates across the loan-to-value curve. Early data regarding the latest Help to Buy scheme introduced by the government, suggests that first-time buyers are also primarily benefiting with more than 80 per cent of the Halifax’s applicants so far being first-time buyers, for example. Expect the scheme to significantly boost the number of first-time buyers in coming months.
Taking all the above into account and notwithstanding the imbalance of short supply and increased demand my forecast for UK House prices in 2014 is that we will witness a rise by 7-8% and by almost 35% over the next five years.
London as the capital will continue to move out ahead of the rest, with prices in central London set to increase by nearly 40% over a five year period. Expect prices to rise by nearly 9% during 2014. House prices in prime central London are anticipated to slow their growth a little bit, as demand is expected to soften with investors searching for better yielding assets elsewhere. Nevertheless home values will still be going up by approximately 9% in 2014, unlike some conservative forecasts that have seen the light of day which ignore Deloitte’s research about the improvement in high skilled employment.
It is worth noting that house prices both in London and the South of England will continue to outperform the average for England and Wales, while Northern parts of the country will see a more subdued revival.
A liquid and active market is the key to avoiding volatility and to ensuring a stable and sustainable housing market in the UK, More transactions and more homes supply are an absolute must in order to have a sustainable property market.
Therefore it is time now to concentrate on how we move forward into a new era of growth, development and success stories.
This forecast from MARIO APOSTOLOU is amongst the first of many from across the property market, which will appear between now and January 2014.
MARIO APOSTOLOU FRSA
LEADING PROPERTY EXPERT
FOLLOW on TWITTER @MARIOAPOSTOLOU