08 May Welcoming in the New Year …
The year started with shortages of supply in the sales market continuing from the latter part of 2009 and this helped create an urgency amongst purchasers and an upward movement of house prices.
Mortgage availability was an issue, as it has remained throughout the year, and with house building at an all time low, these factors added to the low supply of property to purchase. The rental market however remained strong, bolstered by the situation in the sales market, and the number of transactions in the private rental sector continued to rise.
Whilst volumes of activity remained well below the peaks of 2006 they were gently increasing and with the economy showing signs of officially coming out of recession, there was a degree of cautious optimism developing in the early months of the year.
Of course, there were factors looming that we knew would create uncertainty and impact on the market.
The most major of these, the General Election, was called for May 6th.
Gordon Brown and Labour, perhaps unsurprisingly, lost the General Election and after a few days of negotiations in “smoke filled rooms” a new coalition Government between the Tories and Liberal Democrats emerged. Housing issues were not to the fore in manifesto terms but both the Tories and Liberal Democrats had pledged to remove Home Information Packs and on the 21st May they were duly suspended pending legislative abolition.
The majority of people in the property market, perhaps rashly, celebrated the suspension of HIPs and the numbers of homes coming to the market increased significantly. This had the almost immediate effect of altering the balance between supply and demand and subsequently slowed the sales market.
June saw the new Government hold an emergency budget and announce a Comprehensive Spending Review that would look to take action to reduce the UK’s huge budget deficit and reduce the £43bn being spent in interest on the UK’s current debt levels.
The Government announced that it would be looking to save £11bn from the welfare budget and an announcement was made that VAT would increase from 1st January 2011 from 17.5% to 20%.
Whilst virtually everyone in the UK understood the dire financial situation, opinion as to how and how fast to tackle it was divided and created further uncertainty.
England’s dismal showing in the World Cup Finals in South Africa did little to lift the general mood during the summer The outcome of the Comprehensive Spending Review was announced in October with the plans announced designed to cut Government spending and reduce debt. The actions announced were projected to result in some 490,000 job losses in the public sector (this has subsequently been revised downwards to 330,000 by the independent budget review group).
By this time the sales market had slowed and house prices were starting to reduce again. The many and varied market indices provided conflicting views but the overall picture was of a sales market that was slowing and “fizzling out” towards Christmas. The lettings market however, remained strong, being buoyed by tenant enquiries from those unable to buy due to mortgage restrictions and the re-emergence of “reluctant” landlords who chose to let rather than sell at a price they were unhappy with achieving .
In November the Government announced the introduction of a new Energy Bill and the “Green Deal”. This is a scheme to enable consumers to better insulate their homes and reduce both energy costs and carbon emissions. It is also hoped that it will create over 100,000 jobs in the energy industry by 2015.
Overall 2010 has been a year in which overall sales volumes will not be significantly different from 2009. House prices will likely end the year up a few percentage points but down from their highest levels in the middle of the year.
New home starts will have remained at very low levels with combinations of confidence and planning delays not assisting developers to make positive steps forward. It is likely however that 2011 will see a small improvement in the number of new homes coming to the market.
The lack of mortgage availability is the major factor holding the sales market back with lenders requiring higher levels of deposit and applying tougher income multiples to prospective borrowers. This may be helping improve the balance sheets of the banks but it is doing little to encourage greater liquidity in the sales market.
The private rental sector remains strong and this looks set to continue. If house prices continue to slip then landlord yields will look likely to improve and this may encourage more buy to let investors into the market. Tenant demand outstrips supply and with many “would be” purchasers unable to actually finance a purchase in the short term, this looks set to continue.
I believe that the economic outlook for UK plc will actually turn out to be a little brighter than forecast with better than expected growth and lower than anticipated job losses. There is no doubt that we face a challenging period ahead but property is still moving, sales are being made and lettings arranged. Naturally the numbers of “discretionary” movers has reduced but there are always those who have to move and those who, through the strength of their personal buying poistion, are able to negotiate attractive transactions for themselves.
I do not expect to see house prices fall significantly although a short period of adjustment is clearly with us. For those planning on buying for the first time or moving up market this is actually beneficial. Mortgage lending will rmeain tight but will not worsen and as debt reduces and savings increase, the picture will improve. Interest rates look set to remain low for some time ahead.
To conclude, my view is that any talk of the market “dying” is over exaggerated. Good agents and motivated sellers and buyers will ensure that sales take place albeit not in huge volumes. Landlords are likely to continue to benefit from an excess of demand over supply with good quality tenants being seen as vital from a security and reliability of tenure viewpoint.