Sunday, January 4, 2015

UK Housing Market - What's in Store for 2015?

The UK government acknowledge the importance of the housing market to the UK economy and over the last few years have tried to ‘push it along’, with the introduction of a number of initiatives and policies, such as the help to buy scheme, changes to planning policy and recent changes to stamp duty thresholds

Trying to predict what will happen in the housing market over the next twelve months and beyond is always a topical subject, which generates a wide range of debate particularly as we enter a new year.  Any decision on whether to enter the market or to buy or sell will be dependant upon many different factors and particularly by an individual’s current position on the housing ladder.  There will be those who are looking to get onto the first rung of the ladder and those who want to move further up the ladder who may be looking to ‘upsize’ or even ‘downsize’ depending upon their circumstances.  There will also be those who may be stuck in negative equity as a result of decline in the market over recent years and are looking for the first opportunity to escape. In any event the housing market affects a lot of people who will be watching closely to see what happens before making any decisions.

The UK government have acknowledged the importance of the housing market to the UK economy and over the last few years have tried to ‘push it along’, with the introduction of a number of initiatives and policies, such as the help to buy scheme, changes to planning policy and recent changes to stamp duty thresholds. Over the course of 2014 there has clearly been some positive momentum in the UK Housing market undoubtedly influenced by continued low interest rates and no doubt the impact of initiatives such as the help to buy scheme. However, as ever, opinion seems to be split (depending on what you read) on the effectiveness and impact of these initiatives and policies and only time will tell whether they prove to be a benefit or otherwise.  This really is the crux of the matter; will these types of initiatives and polices create sustainable growth in the housing market progressively or will the benefits be only short lived? Well, as identified at the beginning of this article, the answer is undoubtably one of perspective and will depend on individual circumstances and where a person is on the housing ladder.  An advantage for one person may be a disadvantage for another. Rising house prices is a prime example.

Telegraph Online (Link) recently reported; ‘The average British homeowner saw their property wealth grow by £15,000 this year (2014) – or an astonishing £81,000 for those owning homes in London. The data, from property website Zoopla, is the first to put a figure on house price growth for the year 2014. A tranche of similar numbers from other property price analysts are due in the next few weeks. They are expected to confirm Zoopla's figures and highlight what has been an "extraordinary" year in the British housing market, characterised by a booming first half and then a rapid cooling off. Zoopla said prices across the country rose 6pc bringing the average value to £268,895.’

House Prices - Those who are eager to enter the housing market for the first time may have been biding their time while they save a deposit and no doubt become increasingly frustrated as house price steadily increase. As house price start to increase so does the deposit proportionally, possibly delaying the point at which they can enter the market.  Increasing house prices become less of a problem for those who are already on the housing ladder, because although the purchase price of the next property may increase, so will the price of their existing property, although not always at the same rate.  This is particularly an issue for those who plan to relocate to a different part of the country due to regional price differences, which can be significant.

FT Advisor Online (Link) predict that; House prices will continue to rise in 2015 as gross mortgage lending hits a five-year high next year, Ray Boulger, senior technical manager at mortgage broker John Charcol has predicted. Mr Boulger also said he expects house prices to rise by 4-5 per cent in 2015. He believes that the rate of house price increases will continue slowing, but on-going low interest rates mean that for most people affordability will continue to be more around the deposit than the monthly payments

Interest Rates – Telegraph Online (Link) recently reported; ‘Rates have remained at a record low (0.5%) since March 2009. The Bank now expects inflation, as measured by the consumer prices index, to fall below 1 per cent next year, from October’s rate of 1.3 per cent. Most economists believe interest rates will start to rise in the second half of next year (2015). Bank of England policymakers are increasingly divided over the best time to start raising interest rates without putting the recovery at risk

In a previous article I discussed the implications of interest rate rises (Link) and explained that even a small increase in interest rates will pose difficulties for many with variable rate mortgages, particularly those who have borrowed to their absolute maximum.  As an example the table below provides an indication of the financial impact of an interest rate increase on a variable rate 25 year repayment mortgage loan of £150,000, assuming and existing current interest rate of 3%:

Mortgage amount
Current Interest Rate
Interest Rate Increase
Existing Monthly Payment
New Monthly Payment
Increase per Month
Increase per Year

With house prices predicted to continue to rise in 2015, although much more sedately than in 2014, and interest rates predicated to increase for the first time since 2009 in the second half of 2015 this is likely be another challenging year for the UK housing market.  Although the housing market is showing signs of life we need to ensure that the pace of recovery is sustainable.  This will not be achieved by positive publicity (or spin) alone, but must be underpinned by realistic and tangible means.  Building more homes seems logical, however this is impacted by planning policy, skills shortages, funding and numerous other issues that the government need to sort out to enable us to address our massive housing shortage.

Whichever way you look at it the issues inherent in the UK housing market are not new and have existed for many years, so what are we going to do differently in 2015?  Well, it is likely that we will see very little will change in the space of one year, however if we can continue to make steady measured progress in the housing market in 2015, (rather than short term gains) then we may be on the road to a sustainable recovery which in the mid to long term future will be to the benefit to everyone.

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