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

Source: http://www.theguardian.com/

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.

Source: http://www.thisismoney.co.uk/

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	£150,000	£150,000	£150,000	£150,000
Current Interest Rate	3%	3%	3%	3%
Interest Rate Increase	0.25%	0.5%	0.75%	1.00%
Existing Monthly Payment	£717.85	£717.85	£717.85	£717.85
New Monthly Payment	£737.99	£758.43	£779.15	£800.15
Increase per Month	£20.14	£40.58	£61.30	£82.30
Increase per Year	£241.72	£486.92	£735.57	£987.61

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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UK Rent Trap – A frustrating reality for many would-be home owners

‘The government's official English Housing Survey showed that in 2012-13 the 4 million households in England's private rented sector paid an average of £163 a week for their homes, an increase of £10 since 2008-9, while the 7.2 million households buying their home through a mortgage paid £149’

Source: http://www.moneycrashers.com/

The above statement taken from a recent article in the Guardian Online (Link), provide a startling reality into the changing state of the UK Housing market.  On one side we have the private landlords who will be rubbing their hands together at the prospect of a regular supply on tenants for the mid to long term future and on the other hand we have those who are trapped in the rent cycle as they struggle to save a deposit, which will allow them onto the property ladder.

Those with aspirations to get become homeowners must be extremely frustrated as they hand over a high percentage of their income to their private landlord each month, money which to them (the tenant) is lost forever.  At the same time the cost of living continues to rise steadily and the ability to put money aside for a deposit becomes even more of a challenge.  The outcome of this is often many years in rented accommodation, fundamentally paying somebody else’s mortgage for them, as tenants try to claw themselves out of the ‘rent trap’ and into home ownership.

Source: http://blogs.independent.co.uk/

If, as the research above indicates, that the average weekly rental payment is higher than the average weekly mortgage payment, then the problem does not appear to be affordability of mortgage repayments, moreover, the stumbling block appears to be the ability to save a deposit and being able to take that important first step onto the housing ladder.   I have used the word frustration already however for anyone not in this position (myself included), just for one moment put yourself in the place of a tenant who is handing over a sum of money to a landlord for rent that could easily be paying off their own mortgage if they just had the ability to get onto the property ladder in the first place.  I am sure frustration does not even begin to explain how these people must be feeling.

The UK Government will argue that their Help to Buy scheme has gone some way to addressing some of the problems within the housing market, by making home ownership more accessible to many who are caught in the rent trap described above.  In part this is true as there is plenty of evidence to show that the Help to Buy scheme is bringing first time buyers to the market earlier than they would have been able to due to the requirement of a much lower deposit (5%).  In a further article in the Guardian Online (Link) the Government cite their flagship Help to Buy scheme as the main driver for the recovery in the housing market:

‘The government's controversial Help to Buy mortgage guarantee scheme has supported 7,313 home loans worth a total of £1bn since it was launched in October, official figures show. The figures for the first six months of the mortgage scheme, released by the Treasury, showed the mean value of a property purchased or remortgaged through the scheme was £151,597, well below the average house price of £252,000 recorded by the Office for National Statistics’

In a previous article earlier this year UK Housing Market – ‘Help to Buy’ aiding recover or papering over the cracks? I questioned the future for those using the Help to Buy scheme to enter the property market early and in particular what could happen in five years when they will be required to start to payback the 20% deposit they have effectively borrowed; ‘after five years the help to buy loan will start to attract a fee, which if added to rising interest rates is going to impact significantly, particularly those at the lower end of the income scale.  This therefore begs the question, is the help to buy scheme aiding recover or is it just papering over the cracks?’ 

The Help to Buy scheme may enable a certain amount of people to get out of the rent trap, however unless these people can actually afford the repayments when interest rates start to rise and they are required to start to pay back the 20% deposit as well as face cost of living increases, then they are likely to find themselves back where they started, or possible worse as they will be saddled with more debt.

Source: http://www.amaresearch.co.uk/

The only way of addressing the issues within the housing market and to help those in the rent trap is to increase supply by building more houses. Easy to say you may think, but simple economics tells us that when there is high demand and limited supply for something, the market will naturally adjust to reflect this, pushing up prices (such as the situation we find ourselves in now).  Therefore, to deal with the desperate need for housing in the UK and to control house prices, the UK government should be focusing it’s effort on building more houses and not on temporary ‘fixes’ such as the spare room subsidy (referred to a bedroom tax) and schemes such as help to buy!  BBC News Online (Link) recently reported that the number of housing starts had risen by 31% over the last year, however and interestingly, the number of completions only rose by 4% over the year.

The answers to the problems within the UK housing market are well publicised, however until a committed strategic approach to house building is instigated, driven by the government, then the situation is likely to get worse, resulting in continued hardship and frustration for many would be homeowners.  Note the need for a ‘committed’ approach by the government and not the introduction of short term fixes, which is often the case.

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

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.