Op­ti­mistic out­look for UK prop­erty mar­ket de­spite in­ter­est rate rise

Financial Mirror (Cyprus) - - FRONT PAGE -

Yes, the Bank of Eng­land’s Mon­e­tary Pol­icy Com­mit­tee an­nounced a 0.25% rise but this takes the rate back to where it was 18 months ago and I re­ally be­lieve it is not a big deal. Some home own­ers will pay slightly more if they are not on a fixed rate deal but some lenders are ac­tu­ally re­duc­ing rates and while an­nounce­ments over rises can be ex­pected, this is not go­ing to be enor­mous.

This in­ter­est rate was widely ex­pected. The mar­kets, the banks, the Trea­sury, ev­ery­one knew it was go­ing to hap­pen and what is far more in­ter­est­ing is the lat­est five year fore­casts that have been pub­lished by some of the big hit­ters in the prop­erty in­dus­try.

They re­veal that over the next five years the res­i­den­tial mar­ket is ex­pected to see steady cu­mu­la­tive growth even with ex­pected in­ter­est rate rises be­tween now and 2022. JLL fore­casts in­ter­est rates could reach 2.25% and Sav­ills sug­gests 2.5% which would take the av­er­age mort­gage in­ter­est rate to around 4%.

This is not a doom and gloom sce­nario. Ac­cord­ing to Ian Ker­nohan, econ­o­mist at Royal Lon­don As­set Man­age­ment, as long as in­ter­est rates rise very grad­u­ally from here, then with around 60% of mort­gages on fixed rate deals, the im­pact on house­hold fi­nances shouldn’t be too se­vere, and will be off­set by any fu­ture fall in in­fla­tion.

June Deasy, head of mort­gage pol­icy at UK Fi­nance, pointed out that the ma­jor­ity of bor­row­ers will be pro­tected be­cause they have a fixed rate mort­gage. The fig­ures show that over the last year some two thirds of first time buy­ers have opted to fix their rate for up to two years, with a fur­ther one opt­ing to fix for two to five years.

Rates re­main very low by his­tor­i­cal stan­dards and bor­row­ers re­main well placed to get a good deal from the UK’s in­creas­ingly com­pet­i­tive mort­gage mar­ket as 0.5% is still a his­tor­i­cally low rate.

The fore­casts for price growth paint a pic­ture of a steady ship rather than boom and bust which must be wel­comed. Sav­ills pre­dicts growth of 14% from 2018 to 2022 and this as­sumes a base rate of 2.25% by then.

But there will be con­sid­er­able re­gional vari­a­tion from growth of 18% in the North West of Eng­land to just 7% in Lon­don over this pe­riod, although the firm adds that Lon­don’s prime mar­kets will show stronger growth. Prime cen­tral Lon­don could see growth or 20.3% and outer prime Lon­don growth of 10.2%.

Av­er­age price growth of 2.5% per an­num is fore­cast by JLL as the mar­ket is likely to be still ad­just­ing to vary­ing lev­els of po­lit­i­cal and leg­isla­tive change and it con­cludes that de­spite the in­tru­sion of Brexit, the out­come will be a more sta­ble and healthy UK hous­ing mar­ket.

JLL de­scribes the change as ‘struc­tural’ and says it might take some get­ting used to but in the end it will be good for Gov­ern­ment, the econ­omy, buy­ers, sell­ers and in­dus­try par­tic­i­pants and lay the foun­da­tions for a less volatile UK hous­ing mar­ket in the medium term.

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Strutt & Parker also fore­casts steady growth of 2.5% next year and in 2019, fol­lowed by 4% in 2020, 2021 and 2022, giv­ing a cu­mu­la­tive rise of 18%. But the prime cen­tral Lon­don mar­ket is likely to be flat in 2018.

It should be re­mem­bered that there are far greater po­ten­tial is­sues for the hous­ing mar­ket, namely lack of sup­ply and stamp duty. In­deed calls for the Chan­cel­lor to make some kind of prop­erty mar­ket change in the up­com­ing Bud­get are in­creas­ing again. Per­son­ally I think the best op­tion is to raise the thresh­old where stamp duty kicks in if the Gov­ern­ment wants to gen­uinely help first time buy­ers, es­pe­cially in Lon­don.

Re­cent re­search from Lloyds Bank showed just how much buy­ers who work in Lon­don can save if they move up to 60 min­utes away even tak­ing the high cost of rail travel into ac­count. Although Build to Rent is be­ing cham­pi­oned by de­vel­op­ers and the Gov­ern­ment as the so­lu­tion for pro­fes­sional first time buy­ers, once they want to start a fam­ily they will dream about a house rather than a flat, and that is where a con­tin­ued lack of sup­ply comes in.

We need to build the kind of homes that peo­ple want. New build apart­ments in Lon­don have not been sell­ing as well as ex­pected which sug­gests that this is not what buy­ers want. So de­vel­op­ers and Gov­ern­ment needs to think about what type of homes the na­tion needs and where and get build­ing.

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