The close of one year is often a time for both reflections on what has gone by in the past year and on what the next year will bring. In terms of the housing market, that seems likely to mean slow house-price growth, but growth nevertheless. Here are some reasons for this prediction.
The laws of supply and demand still apply
The UK as a whole has a shortage of housing in general and lower-priced housing in particular. This shortage is most acute in and around London, but can be felt in other parts of the UK. Where demand is higher than supply, prices increase. The extent and speed of the increase can be influenced by a variety of factors.
It’s the elephant in the room and at this point nobody knows whether it will turn out to be a reasonably friendly elephant or a rampaging and destructive one. In a worst-case scenario it could see an exodus of EU citizens without the return of UK expats. In the real world, however, just how likely is it that this will happen? Even if it did occur, would it actually impact the housing market so much that house-price growth would cease completely? At the moment, these are all hypothetical questions, what is, however, a fact is that the UK employment market is massively more flexible than its European counterparts. This has obvious attractions to companies looking for a place to do business, which in turn drives demand for housing.
The Mortgage Market Review of 2014 and the more recent rules brought in by the Prudential Regulation Authority both aimed to ensure that mortgage borrowers would be able to manage their mortgages in the event that interest rates rise. Given how low interest rates are at the moment, realistically, the only way they can move significantly is in an upward direction. If this were to happen, then it could well put downward pressure on house prices and create opportunities for investors with available cash. At the same time, however, even if inflation rises, it’s questionable whether it would be politically acceptable to raise interest rates significantly, given how this would affect both mortgages and consumer debt.
The value of the pound
A falling pound is great news for international buyers looking to diversify and eager for a slice of the UK’s profitable housing market. London has long been known for its popularity with international investment purchasers. There are all kinds of opportunities from new-build developments (particularly ones which stand to benefit from the infrastructure upgrades promised in the Autumn Statement), to looking for property restoration projects to the old staple of buy to let property investment.
Emphasis on income
Seeing the value of a property portfolio rise on paper can be a pleasant feeling, but in reality this value is only realized as, when and if you sell a property. Income is what keeps the wheels of life turning smoothly in the here and now and the smoother that income stream, the smoother the wheels turn. This has long been the attraction of buy to let and is also the reason why investment options such as commercial property and special-purpose property such as retirement or care homes is now seeing a lot of interest from investors.