2012 was a tough year for the UK housing market and even the prime sector was negatively affected by a combination of the ailing economy, the second wettest weather conditions on record and the distractions of the Queen’s Diamond Jubilee and the Olympic/Paralympic Games.
Added to concern about the shorter-term direction of the market, this gave rise to a general ‘wait-and-see’ attitude on the part of both vendors and purchasers. It is therefore pleasing to be able to report on a number of positive indicators as we enter 2013 which, if sustained, suggest we may be about to experience a change for the better in the fortunes of the market.
Not only has recent data pointed to an increase in mortgage lending and house sales (including first time buyer activity which, according to Halifax, reached its highest level in 2012 since the global crash of 2007) but several property portals have seen a jump in searches in recent months.
With the Treasury panel of independent forecasters predicting that the economy will pick up this year (although there are others who are warning of a possible triple dip recession), there is good reason to expect that 2013 will indeed be a better year – and we certainly deserve it after languishing for several years in a state of suspended animation.
We must not be complacent as for the time being the national housing market remains fragile with the exception of London. Consumer confidence is understandably weak and affordability issues have been exacerbated by low levels of mortgage lending.
However, a number of lenders have announced plans to increase their mortgage lending in 2013 and interest rates should stay low over the year. Combined with the Government’s New Buy and Funding for Lending initiatives, this should all help to raise transaction activity as pent-up sales demand is released – the RICS is even predicting that residential sales this year will reach their highest level since 2007.
If this momentum is sustained and the economy improves as expected, consumer confidence will rise and should help to kick-start a new cycle of price growth – although no-one is suggesting a return to the heady property price inflation witnessed in the early to late Noughties.
Any recovery will be gradual and regional variation is set to persist for some time to come with London, the South East, East Anglia and the South West likely to at least maintain the gap with the remainder of the country.
While the prime markets have, to some extent, been cushioned from the full impact of the recession thanks to the financial strength of high net worth purchasers, they have not been completely immune. The spate of sales activity experienced by our offices in December is hopefully a sign that the ‘wait-and-see’ mentality of buyers is beginning to change.
London should again be the stand-out performer. Sustained demand from overseas buyers (combined with limited available stock) is key to the future health of the market and I believe the longstanding pull factors of London combined with the push factors from overseas (e.g. economic and geo-political flight and liberalisation of capital controls) will continue to bring foreign investment into the capital’s prime locations.
The imminent new taxation of properties held within corporate wrappers is more likely to be an irritant rather than a deal breaker for most buyers who will likely restructure their mode of acquisition.
With regard to the prime country market, the shortage of quality available stock should serve to sustain values in 2013 in the best locations although elsewhere market conditions are tougher and values are likely to be flat or see further slight decline over the coming year.
What else can we expect in 2013? The Government is considering whether to relax planning regulations regarding home extensions. The proposal is to allow extensions up to 6m (on a terraced house) and 8m (on a detached house) in non-conservation areas without the need for planning permission.
The relaxation would initially be a for a limited time period of three years with a review thereafter. However, we understand that a number of councils and other bodies have already raised objections.
We may also see some movement on tightening the regulatory framework for the private rented sector with a number of initiatives already being put forward which would affect both managing/lettings agents and landlords. The private rented sector in general is likely to continue to expand as many aspirational homeowners will remain frozen out of the sales market due to affordability issues.
Finally, new homes could get a lot more expensive if the EU proposal to force the UK to apply a 20 per cent VAT rate on the sale of new build residential properties is enforced. This is the last thing that the UK housing market needs as it struggles back onto its feet and hopefully something that our Government will be able to resist.