I thought I would take the opportunity to commence the New Year with some predictions as to what to expect in the property arena during 2015, starting with a look at some of the festive headlines:
Property prices expected to grow by at least 7% during 2015
Let’s just examine this; of course, no one really knows what will happen as crystal balls are in short supply! For example, out of all the so called expert opinions, predictions and expectations, there were few who foresaw the downturn of 2007 coming; the property market is a funny old thing!
However, there is evidence to support this growth prediction – the strongest being lack of supply. The Government has indicated its well-intended target to build more houses during 2015; but let’s reflect on that – there is a general election in May, so what will happen then? Of course, the ‘other lot’ have made similar promises, (more social housing) but where is the money coming from and, maybe more importantly, ‘the buyer’?
The Help to Buy (H2B) scheme, which was introduced a couple of years’ ago, has come nowhere near delivering the anticipated ‘magic wand’, although, to be fair it has gone some way to getting the wheels turning again, by delivering since its introduction somewhere near 250,000 sales against a building program of about 175,000 properties each year.
The biggest problem still lies with the buyer: THE DEPOSIT.
Currently, the average UK house price stands at £176,581*. Based on this, as every hopeful buyer is aware, there is the need for a minimum 25% deposit, working out at a hefty £44,145. Now, factor in the % growth predicted (more of this in a moment) and the queuing demand for every decent house available, which drives the seller into thinking they have a more valuable asset, and then we have a sellers’ market, and subsequent driving upwards of property prices.
In December 2014, the NAEA (National Association of Estate Agents) has predicted that 2015 will see a growth in property prices of about 7%; factor this in to the considerations above and we now have the need for a deposit of £47,240! Now, let’s consider the wage growth predictions. Britain’s employers handed workers an average pay rise of 2.5% in the first quarter of the year, settling with the balance against inflation at about 1.6%**.
So what does all this actually mean? Well, I guess it’s clear – if house prices and deposits are already extremely difficult to attain, it’s nigh on impossible to save a deposit, and house price are rising at 7% but wages only at about 2.5%, then it is clear that the purchase experience and that of owning your own home is getting further and further away for a lot of people.
We all need somewhere to live and if we can’t afford to buy, what is the alternative and what impact will this have upon property sector?
* November 2014 data UK Land Registry
The November data shows an average house price in England & Wales of £176,581,
** The median pay rise reported by Incomes Data Services.
Generational Rent
Many savvy (and some not so savvy!) investors have recognised the growing demand, with the rental markets now buzzing with new investment buyer activity and, of course, this increased activity driving up both investment prices and rental prices. I have for some time been predicting the end (and the sooner the better) of BMV (Below Market Value) deals; why would a seller sell BMV in an upward market?
Of course, there will always be the exception to the rule, such as repossession problems. As the H2B scheme matures, trust me when I say that we will be seeing plenty of these coming on stream, only this time in a much a worse state – but more on that shortly.
The demand for rental accommodation is also predicted to get stronger, encouraged by many factors aside of just the shortage of deposits. For example, lack of new build, job transience, immigration and so on. It is said we are already 1 million homes short, growing to as much as 3 million by 2020…so what can we do?
Stimulate the PRS The Government must look at better ways of stimulating the PRS (Private Rental Sector), including changing the tax classification from investment to business class and changing the non-payment of rent (culture) laws, although it looks like Universal Credit may go a little way to helping combat part of that problem.
The possession procedure must be improved: at the moment it takes about 6 months to recover a property, even under the section 21 procedure, which is supposedly the quick route to recovery, and that is from the point of application.
There is much more that can be done with the right political will, but I have to say that property investment is still currently one of, if not the best, portfolio source out there, and as this continues to be the case due to the growing demand, nay necessity, it is clear that we are in for a bumper year in property.
If you are considering property investment at any level it is imperative that you seek out professional advice, preferably from someone who knows your territory of choice, the area you are considering, the prices and the rental demand in those areas. Bearing in mind if we are in a rising market, as I have attempted to demonstrate here, you don’t need to be holding out for the ‘Golden Fleece’ of a deal – look for a bargain not necessarily a steal – Win, Win is always the better outcome!
So, as you can see, there’s an exciting year ahead in the property sector. If you are considering investment in property, or indeed a career and lifestyle change, we are perfectly placed to assist, direct and support you. We can help you to recognise an opportunity that may be right under your nose.
Let’s avoid the start of 2016 muttering, “I wish I knew then what I know now”!
Wishing you a prosperous and very happy new year!
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