Monday, January 7, 2013

UK Housing Market - What's in Store for 2013?

2013 is likely to be another challenging year in the UK housing market, however there will undoubtedly be opportunities for those who are willing to make tough decisions.  As with all areas of life, there are no guarantees, although bricks and mortar will always be a good investment as long as you get the timing right!

Source: Google Images
At the very beginning of a new year it is only natural to reflect on the year that has gone and to think about what the coming year has in store for us.  This is particularly relevant for those who are looking to either take their first steps on the housing ladder or for those who are already on the housing ladder and for different reasons are looking to move.  In a slow moving, stagnant or even contracting economy (depending on which statistics you believe), the decision on when to take this step or make this move is difficult.  

The term ‘affordable’ has taken on a whole new dimension over the last 30 years where the average price of a house in the UK has increased from £25,580 in 1982 to £163,910 in Q3 2012 (Nationwide 2012).  With many lenders now requiring a deposit of around 20% it is not difficult to see why so many first time buyers are struggling to enter the market.  This then has a knock on effect further up the property ladder as those looking to move from their first purchase are severely hampered by the lack of first time buyers and this is then replicated even further up the chain.  The outcome of this is a housing market which is gasping for air as it struggles to show any life.  Developers demonstrate a lack of confidence in the market by delaying or mothballing new house building projects, even some which have already obtained planning permission!  This in turn restricts supply as developers are reluctant to build houses which they will struggle to sell.  The whole thing is a complete mess, however will things get any better in 2013?

Simon Rubinsohn Chief Economist at RICS makes the following assessment in the RICS 2013 Housing Market Forecast:

‘The average house price in the UK looks set to rise by a further two percent next year, despite the uncertain outlook for the economy. More positively, the amount of sales going through should also see an increase across the country, climbing to its best level since 2007, as the Funding for Lending scheme helps boost the availability of mortgage finance.

But these tentative signs of recovery in the sales market should not blind us to the very real problems that still exist. Even with the Funding for Lending scheme and some other government policies beginning to be felt in the mortgage market, many first-time buyers will continue to find it difficult to secure a sufficiently large loan to take an initial step on the housing market. Meanwhile, the alternative of renting is becoming more and more costly with a further increase in rents likely in 2013. Critically, the government needs to ensure that the conditions are in place that will enable the stock of new housing, whether for purchase or rent, to rise more rapidly.’

It is clear that there is never a ‘perfect time’ in the housing market, and in reality the ability to be able to join or move in the housing market will usually come down to availability of finance, being brave enough to take a leap of faith and sometimes pure luck!  We only become aware of favourable (or not so favourable) market conditions after the event and it is these moments that we are striving to predict.  History shows us that many of those who purchased houses at the height of the market in 2007 are now in negative equity and with hindsight we are able to look back and see that for many this was not a good time to purchase.  Unfortunately, the future does not give us the benefit of hindsight, so we make our decisions based upon what we hope will happen. 

Source: Google Images
For the first time buyer I would suggest that 2013 will be a good time to step onto the housing ladder.  Interest rates are generally low and there are signs that lenders are starting to make finance more readily available, although there is always the issue of the deposit that will needed.  There is also a good quantity of houses for sale on the market and sellers who have had their houses on the market for some time are likely to be much more willing to negotiate on the price.  At present, this really is a buyers market and first time buyers should use this to their full advantage.   Rental values are high and continuing to rise.  Trying to save for a deposit while renting at the same time is a false economy and any money that is used for rent each month is wasted money that would be better spent on a mortgage.  I am aware that this is an unavoidable predicament for many people, however it must be very frustrating to know that in some situations it would actually be cheaper to pay for your monthly mortgage than the amount you are paying to your landlord each month for rent.

Those who are already on the housing ladder and looking to move are in a different situation to the first time buyer.  As house prices have reduced since 2007 (this varies depending on location), there will be many who will bide their time and hope that the market improves with prices eventually returning to the value they purchased for, or even more, however this could take a number of years.  There will also be those who take the pragmatic ‘relative view’ of the housing market.  These people accept that their house has reduced in value however also realise that a house that they may be interested in buying would also have reduced proportionally as a result of market conditions.  Therefore they feel that they are not making any loss in real terms.  The decision to move in 2013 for these people will depend on whether they take a pragmatic view as described above or whether they decide to play the waiting game and hope for an improvement in the market.  Those in negative equity will need to either be patient for a number of years or consider downsizing or possibly selling at a loss in order to reduce their debt burden or worst of all, re-possession.

2013 is likely to be another challenging year in the UK housing market, however there will undoubtedly be opportunities for those who are willing to make tough decisions.  As with all areas of life, there are no guarantees, although bricks and mortar will always be a good investment as long as you get the timing right!

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

1 comment:

  1. Hopefully now mortgages are becoming more readily accessible again so more people can borrow and get on the property ladder, the small improvement already seen in the UK property market in the first quarter of 2013 will continue.

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