UK house prices have stagnated since the credit crunch and prolonged recession. Property specialists Frank Knight expect house prices to take until 2017 to recover their pre-crash levels.
Despite an improvement in housing enquiries, pre-Christmas the overall outlook for the housing market is fragile, with limited growth prospects. However, the UK housing market is still strongly determined by geographical variations, with areas in London and the South East, continuing to buck the national trend.
Forecast for House Prices in 2013
- Savills forecast house prices to grow by 0.5% (with growth totalling just 11.5% in the next five years)
- Frank Knight – expect house prices to fall by 1.0%
- Jones Lang LaSalle. expect house prices to rise by 1.0%, but they see improving transaction volumes
Factors Affecting House Prices in 2013
Continued shortage of housing. Only 115,000 housing completions are expected for 2013. This meets only half of England’s housing requirements, and continues past years of poor housing supply growth. This will continue to keep prices high and make it difficult for many first time buyers to get on the property ladder.
2. Interest Rates
The Bank of England have given a strong indication that there is no prospect of increasing interest rates in the foreseeable future. With output depressed, unemployment high, and signs of continued economic weakness, homeowners are likely to enjoy the continuation of ultra-low interest rates. Mortgage interest payments are at just over 30% of disposable income – in line with the average for the past couple of decades.
3. Lack of Mortgage Availability
Very slowly the mortgage market is coming back to life. We have seen the return of the old 95% mortgage, but although there has been a minor relaxation, fundamentally, the market is very different to pre 2007 – and there is no sign of a return. For most potential homeowners, they are being put off by the necessity of saving 25% of LTV for their mortgage. It has meant that the percentage of homeowners in the economy, is at a recent low. With bank credit still constrained, lack of mortgage finance will continue to be an issue reducing housing demand.
The difficulties young people face in entering the mortgage market are highlighted by the fact that the under 35s currently control less than 4.0 per cent of the housing wealth in the owner occupied sector while the over 55s own over two-thirds.’ This creates a large intergenerational inequality and will adversely affect house prices.
4. Economy and Unemployment
With the Eurozone entering a deeper recession, there is a real possibility of a triple dip recession in 2013. This will mean depressed incomes and a continued high rate of unemployment. This will provide a further stranglehold on demand. With people pessimistic about the future, they will prefer to wait and rent, rather than risk entering the housing market.
5. Real House Prices
Even the more optimistic house price forecasts of 1-2% – could still see a fall in real house prices. With inflation running above target, rising costs of living could see the value of homes eroded
Overall, house prices are expected to stagnate in 2013 as continued economic weakness hold back new buyers entering the market. Yet despite the recession and limited availability of mortgages, prices will not fall due to the fundamental shortage of supply. Should the economy recover by 2014, the outlook for house prices is more promising.