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Is the UK Property Market really slowing down?


There has been a lot of conflicting information about the UK property market over the last year. If you listen to experts such as Savills Estate Agents, the housing market looks set to rise between 18% and 25% over the next five years. Other housing analysts are more cautious; concerned that the property market shows signs of a slowdown. So who should you believe? 


Let’s begin with some facts. UK property prices hit a new high in July 2014 when the average price of a home (outside London) rose to £272,000. This was an 11.7% increase on prices in the last 12 months, and does suggest that the property market is rising after the 2008 crash.

While most regions of the country are now seeing asking prices above their 2008 ceiling, this is not true everywhere. Many homeowners in the North East of England, Northern Ireland and parts of Wales are still languishing in negative equity.

In contrast London prices have soared. The average price of a house in the UK capital rose to 19.1% to £514,000 in July 2014. While prices slowed to a 17% rise in the autumn, the market remains buoyant. About 37% of property purchases have been to cash buyers, investors who have bought property in prime London locations.

Rising prices have encouraged some central London residents to cash in and move out of the city to enjoy the greater space available in the suburbs. A ‘ripple effect’ of high prices has been seen across Greater London and the Home Counties as some leave the capital for a larger home, while others are priced out of the city’s rising market. At the moment, this trend shows little sign of slowing down.

Another factor driving up property prices is the greater availability of homes in regions such as the South East, South West and the West Midlands where prices have risen above their 2008 peak. Homeowners previously reluctant to sell have now felt able to put their homes on the market.

Recent price rises beyond London have been prompted by a rise in demand for property from first-time buyers. With the support of the Government’s Help to Buy scheme, many first-time buyers with small deposits have been able to access a mortgage.

In addition, a lot of parents are now dipping into their own savings to help their children with a deposit. Currently two thirds of first-time buyers receive parental help, with an average contribution of £23,000. This has made a crucial difference.

Rising rents have made it harder for many young workers to save. In many areas of the UK mortgage payments are now cheaper than renting a property. Parental help allows first time buyers to borrow lower sums from the bank and enables them to access the best mortgage rates. Coupled with a recent price war in low fixed-rate mortgages, many new buyers have been encouraged to take the plunge.

All of these factors would tend to suggest that rising house prices are with us for the foreseeable future. But there are other aspects to consider. The Bank of England brought in caps for mortgages with high salary multiples in June and May’s Mortgage Market Review (MMR) ushered in a more stringent financial assessment process with a number of stress tests for mortgage applicants.

While these measures should mean that fewer borrowers default on their mortgages in the future, it is also likely to restrict credit for new buyers. If parents are unable to step in to bridge any financial gaps, it could mean fewer first time buyers enter the market in the coming months.

August 2014 saw a 13% rise in borrowing when compared to the previous year. This spike in approvals at this (usually quiet) time of year is in part the result of mortgage applications that were delayed under the new MMR rules in the spring. The Council of Mortgage Lenders (CML) has indicated that this is a sign of a slowdown in lending.

Now that borrowers have to undergo detailed financial stress tests and cannot access higher loan-to-value mortgages, there may be a limit on how far property prices can rise. Prices are determined in part by the availability of credit, so if the CML is correct, house prices could drop in the future.

The rising cost of living also plays its part. While UK wages have risen 3% on average since 2013, the cost of food and other essentials has also risen by 2.7%, meaning that disposable income is limited for many buyers.

In addition, the cost of an average home in England and Wales is now 8.8 times average earnings. This figure may mean that current property prices are out of reach for those who cannot save large deposits, or whose monthly outgoings mean that they would not be assessed as suitable borrowers under new MMR rules.


Interest rates are another key part of the story. If the Bank of England votes to increase interest rates in 2015, the cost of borrowing will rise. This will affect homeowners and those who hope to buy.

For homeowners struggling to manage high mortgage repayments, an interest rate rise could push them into arrears. For potential first time buyers, rising rates could mean that they no longer fulfil the MMR criteria that allow them to access a mortgage. This gap in affordability may signal a fall in prices.

The great unknown in the equation is the large proportion of cash buyers in the market. These are often foreign investors looking for a secure return on their money. At the moment they play an important role in the property market in many areas. It is difficult to predict whether they will continue to favour the UK as a safe haven for property investment, or whether another country will become more attractive.

Overall, it is difficult to predict what will happen in the next 12 months. Low oil prices may help to ease the cost of living and give buyers a greater disposable income. If the UK economy continues to grow, house prices should continue to grow as well. In the end it will be essential for buyers to carefully consider their individual financial situation before taking the plunge.



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