One of the reasons there are no end of articles on the web about an imminent property market crash in the UK is that prices won’t continue rising forever.
However, there is a middle way between periods of crash and the boom that we’ve experienced over the last few years. This is why 2015 is unlikely to be the year the party comes to an end…
Interest rates will stay low
Despite the constant speculation about interest rates rising, the Bank of England base rate has remained at an all-time low of 0.5% for the past five years. The Bank of England governor Mark Carney previously said that unemployment would be used as a benchmark to raise its rates, with 7% the point where they’d increase.
However, unemployment’s been falling faster than expected, so that idea was hastily retracted and now wage growth is the key factor. The Bank’s indicated that it anticipates they’ll increase slowly from 0.5% to 2-3% during 2015, meaning that mortgages are likely to stay relatively cheap.
During his Autumn Statement in December, the Chancellor George Osborne introduced new stamp duty rates. The reforms benefit 98% of homeowners, but at the higher end of the market (for properties worth £925,000 plus) the amount home purchasers must pay will be much steeper, kicking in at 10% and then 12% on properties over £1.5m. The changes mean that more momentum could be created in the market, freeing up properties for first-time buyers. Property prices also could rise, as vendors up the sale price as it wouldn’t make any difference to the stamp duty rate.
More details on the new rates can be found here.
There’s been a lot of criticism about house price increases, with some commentators saying that prime property prices have been kept artificially high due to international investors keen to snap up property. Due to global instability, the UK’s steady legal system, business-friendly environment and competitive tax system, many overseas buyers are more than happy to put their money into the UK property market.
The extent of this problem has been somewhat over-exaggerated, but it’s undeniable that the trend has had an effect. And with the Rouble tumbling, more and more Russians (just to name one nationality) are eager to buy property in the UK capital so they can keep their money safe. As long as overseas buyers are buying property in London, prices will remain high.
The supply factor
Supply in the UK is still very low, with hundreds of thousands of new homes needed to be built in order to accommodate the growing population. However, strict planning laws mean that this isn’t happening and so property is becoming a scarce commodity. Therefore, prices are likely to remain high until this problem is addressed.
Since mid-2013 the UK economy has grown at the fastest pace of any developed economy. While there’s some truth in claims that this is artificial growth based on consumption and asset inflation, when the economy’s good it usually has a knock-on effect on property prices. Recently there’s been a bit of a turn around and a slowdown in activity linked to weakness in the Eurozone, but in comparison to other countries, the UK remains strong.
One more thing…
It’s important to remember that this is general election year and is set to be one of the most uncertain in 100 years. The outcome could have an effect on the housing market, with the Labour Party pledging to introduce a mansion tax on property worth over £2m if it forms a government.
Image credit: propertydivision.co.uk