As the UK property market begins to gather strength in 2015, many new buyers are considering home ownership. A rising market encourages homeowners to put their property on the market, while demand for properties encourages buyers to pay a little more to secure their dream home.
For most adults, buying property is often the biggest purchase they will ever make. That is why choosing the right property in the right location is crucial. So, where should you avoid buying a home in 2015?
The mystery of falling market confidence
Despite rising house prices across the country, market confidence in the UK is falling. According to the latest Halifax Housing Market Confidence Tracker, in April 2015 the proportion of people who were confident that average prices would rise fell to +58 (from +64 in March). Confidence among sellers also fell from +33 to +30. Why is this happening?
April’s figures may reflect market uncertainty in the weeks before the General Election, but it is also possible that they reflect a more complex situation in the UK property market itself.
In some areas of the country (such as London and the South East), many would-be buyers have been squeezed by high demand and rapidly rising prices, making affordability a barrier to owning their own home. In other areas (such as the North East, Yorkshire and the Humber, and the North West) a still-volatile market is seeing price falls as well as modest price rises.
Buyers and sellers in this split market have to respond to different pressures. In the areas of high demand, buyers must beware overvalued properties, or stretching themselves beyond what they can afford. For those looking to buy in more volatile locations, there is the threat of low demand, falling prices and negative equity.
So, which areas and property types should buyers avoid?
High prices in London have squeezed many buyers to their financial limits in order to get onto the property ladder.
While foreign investors and those with City salaries can often afford to keep pace with the annual rises (6.8% in April 2015), many with more modest incomes are increasingly reliant on low interest rates to maintain the affordability of their mortgages.
Despite high demand, homeowners cannot always bank on being able to sell their home at a profit. While prices do look set to rise gradually over the medium term, according to E.Surv Chartered Surveyors, the number of sales in London declined by 16.5% in Q1 of 2015.
These figures may indicate that, until the value of wages rises in real terms, few buyers on average London salaries can afford to buy a property.
South East rising
Home.co.uk recently reported that house price rises in the South East, the Midlands and East Anglia have now started to outpace London, as buyers seek better value for money outside the capital.
Oxford has been a popular choice for well-heeled buyers, with average house prices rising to £564,590 in June 2015. Many would-be buyers in the city have been affected by the record prices: the average home now costs 11 times the average salary.
Other commuter towns and cities have seen similar rises. An average home in the university town of Cambridge cost £586,246 in June 2015 and an average property in Reading costs £431,902*.
What if you need to live somewhere expensive?
While buying a home in a desirable area might be risky for average earners, a bit of local knowledge can make the difference when it comes to financial stability.
In Oxford, Reading and Cambridge, flats are the most affordable form of property, with average asking prices of £347,415, £220,290 and £323,619 respectively.
However, the market in each city is different, and so buying in each location carries a different level of risk. In Oxford, demand for flats is high, with average prices rising 47% since 2014. This upward trend looks set to continue, with demand vastly outstripping supply in the city.
However in Cambridge and Reading, the price of an apartment has not risen so strongly. Demand for flats in Reading peaked in autumn 2014, with subsequent prices falls stabilising this spring. In Cambridge, the price of apartments has fallen from their November 2014 peak and this trend looks set to continue.
For those worried about the impact of rising interest rates, or a correction in the housing market, buying an apartment looks like the most risky financial option. In both cities, buying a house of any type is less risky than buying a flat. Terraced houses, for instance, would be a better investment for those with a smaller deposit.
What about buying in the affordable North East?
In Yorkshire, Humber and the North East of England house prices have yet to benefit from the steady rises seen further south. In the city of Hull, for example, the average home costs £134,669. Unfortunately prices have flatlined here in the first few months of 2015, with even the most desirable properties losing value.
Those looking to buy a more modest home will find that the average flat (costing £85,000) is much cheaper in Hull than in Reading, but the market is still falling. Prices are 23% lower than in 2006, reflecting high rates of unemployment and few local job opportunities. There is a high risk of negative equity and low demand for homes in the city may make it difficult to move quickly or sell at a profit.
A similar picture can be seen in Middlesbrough, where the cost of an average home (£130,782) is still 13% lower than its August 2007 peak. Currently, low demand for housing means property is unlikely to rise in value.
Just as in Hull, apartments in Middlesbrough are the most vulnerable to house price falls, with the average price of a flat 34% lower than it was in 2007.
Are rising prices in the North West a sign of recovery?
On the other side of the Pennines, property in the North West have seen moderate prices rises in 2015. City boroughs such as Salford, which have experienced very volatile prices over the last few years, now seem to have entered a period of calm.
Despite the fact that Salford is located close to Manchester city centre and Media City UK, the average price of an apartment (now £130,000) has fallen 28% since 1996. In fact the only sector of property whose value has risen with demand in that time is terraced houses, with an average price of £140,000 in June 2015. At the moment it is hard to say how quickly things will improve over the next few years. Increased jobs and infrastructure in Manchester may help to push up prices.
In the smaller Lancashire town of Preston, prices have remained steady, but have also yet to recover from the 2007 property boom. The average price of a home is £162,260, 13% lower than before the peak.
Just as in other areas of the North West, those who are seeking to buy property in their hometown, or to live here for the next 25 years, may find that buying a property is a solid investment. However, those who need to relocate could find it difficult to sell.
To Buy or Not to Buy?
Whether affordability or market volatility is the problem, the worst place to buy is in a location where your property does not suit your financial situation. An over-valued apartment in a commuter town might seem ideal, but you will need to carefully consider your financial situation before taking the plunge.
In more affordable areas with lower demand, you should aim to avoid negative equity. Choosing the right type of property, in an area with good amenities, should help to safeguard your investment.
Good luck with your property search!
*All average house prices sourced from Home.co.uk, June 2015