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Economists forecast property price growth of just 1.5% in UK, fall in London
UK house prices will grow only by 1.5% in 2015 but they are set to fall by 3.6% in London before growing again but slowly over the next five years, according to economists. The report from the Centre for Economics and Business Research (Cebr) is an upward revision from its previous report in January when it forecast a fall of 0.6% in prices this year. It said that the impact of December’s stamp duty changes has been felt sooner than expected, with some buyers putting cash saved towards a deposit but while expectations have been revised up it is a more subdued outlook for London. The property market in the capital continues to show signs of cooling. Average house prices in London are expected to decline by 3.6% over 2015 but the report also points out that they increased by 17.4% in 2104. Cebr continues to expect London house prices to underperform the rest of the UK this year, following years of over performance. It points out that the strength of sterling against the euro, fears of a mansion tax and hefty new stamp duty rates on high value properties have all hit housing demand from overseas buyers. In 2015, for the first time since 2009, house price growth will be stronger outside the capital than in London itself. Leading indicators such as fewer new buyer enquiries and properties taking longer to sell already point to falling prices in the capital. Outside of the capital, the decline in overseas interest in UK property will be much less strongly felt. At the same time, most home buyers have benefited from December’s stamp duty changes as well as an improving labour market which has boosted consumer spending power. The YouGov/Cebr Household Economic Activity Tracker (HEAT) shows that consumer expectations for property price growth across the UK have been picking up in recent months after declining in October, something that is feeding through into rising consumer confidence in the run-up to the general election. ‘Outside of London, the outlook for house prices this year has improved after a few months when the market appeared to be coming off the boil. December’s stamp duty changes, as well as rising household incomes, are lifting prices in many parts of the UK,’ said Nina Skero, Cebr economist and main author of the report. ‘In London, however, we expect prices to decline by 3.6%, driven by a significant weakening at the prime end of the market. A potential mansion tax, reduced overseas interest and hefty new stamp duty rates have hit demand for high value property,’ he added. Continue reading
18 year comparison index shows UK buy to let outstripping other asset classes
Buy to let in the UK over the past 18 years has provided average returns that outstrip those of other major asset classes, new research shows. Every £1,000 invested in an average buy to let property purchased with a 75% loan to value (LTV) mortgage in the final quarter of 1996 would have been worth £14,897 by the final quarter of 2014, a compound annual return of 16.2%. The same investment in UK commercial property would have grown to £4,494, in gilts or UK government bonds to £3,329, in UK shares to £3,119 and in cash to £1,959, according to the research from buy to let lender Landbay. A buy to let purchaser buying entirely with cash would have seen each £1,000 invested grow to £5,071 by the end of 2014, a compound annual return of 9.4%. The report points out that 2014 was a good year for buy to let investors with property prices rising by an average 8.3% over the course of the year. The index shows that mortgaged landlords achieved average returns of 18.3% for the year, 81.9% of which was comprised on capital gains while the unmortgaged index achieved returns of 7.9%. The figures cover 18 years with a comparison from 1996 as this was the year the buy to let mortgage initiative was launched by the Association of Residential Letting Agents (ARLA) and buy to let mortgage lenders, opening residential rental property to ordinary investors. ‘The phenomenon of buy to let as an asset class only goes to underline the stable personal finances of landlords. The stability of returns shown in this paper underlines why this group of borrowers can be so attractive for lenders. In fact the history of buy to let can be viewed as a history of opportunity for those offering the financial backing to landlords,’ said John Goodall, chief executive of Landbay. ‘However, the bigger trend underlined here is the democratisation of such investments, which started a generation ago, and is far from complete. Buy to let itself is only one example of this shift. Now new models of peer to peer finance can give access to the returns involved in lending to such industries. Since 1996 ordinary investors have been able to be landlords, but now in 2015, ordinary investors can play the role of the bank,’ he explained. The report includes an updated 10 year projection for buy to let returns assuming house prices rise 4% a year, rents by 2% a year and mortgage rates rise to 5.5% by 2022. The projections suggest that every £1,000 invested at the end of last year using a 75% LTV mortgage would be worth £2,874 by the end of 2024, an average annual return of 11.1%. The corresponding annual return for an unmortgaged investor would be a more modest 6.1% but not far short of the rate of return from equities over the 1996 to 2014 period. ‘If these projections prove to be broadly… Continue reading
UK Lib Dems set out plans for a Help to Rent scheme for young people
The Liberal Democrats, one of the main political parties in the UK, have announced plans for a new Help to Rent scheme to support young workers move out of their family home and into a rented property. The party, which was part of the coalition government, said it would introduce the scheme if it is again part of the new government after the general election next month. It pointed out that research shows that around two million young working adults still live with their parents despite being in paid work because they can’t afford to get a home of their own. Rising rental costs mean that many young workers can't afford the money needed for a tenancy deposit of the one to two month's rent expected up front unless they have financial help from their parents or friends. Under the Help to Rent scheme, young working people in England would be able to borrow up to £1,500 or £2,000 in London from the government to go towards their tenancy deposit. To be eligible, tenants would need to be between 18 and 30 years old, in paid employment and not be home owners or seeking social housing tenancy. Loans could be paid over one or two years and once paid off, could be used for future rental properties. The knock-on effect of having young working adults in the family can also lead to parents having to upsize or delay the downsizing of family homes to accommodate older children, thereby reducing the availability of family homes. ‘Increasingly we see young people stuck in the family home as they can't afford the upfront costs of a deposit to rent a property despite having a paid job. It's simply unfair that thousands of hard working young people still have to live in the same bedroom they lived in when children,’ said Deputy Prime Minister and Leader of the Liberal Democrats Nick Clegg. ‘When you get your own job, you want to stand on your own two feet, have your own space, and not have to rely on the bank of mum and dad. Our Help to Rent scheme removes this barrier to young people's independence, providing access to up to £2,000 towards their tenancy deposit so they can fly the nest and rent their own space,’ he added. Ian Fletcher, director of policy of the British Property Federation, pointed out that young renters often do not have a credit history and therefore struggle to raise a deposit. ‘This welcome policy will help more people into their first homes and stop them having to raise funds through pay-day lenders and other risky means,’ he said. ‘This announcement builds on the excellent work of the Confederation of British Industry and housing charity Shelter, who have encouraged employers to voluntarily offer loans for tenancy deposits, much like loans already offered for travel season tickets,’ he explained. ‘Schemes such as these are also made possible by the vast majority of legitimate landlords and agents, who… Continue reading
