Over the last few years we have certainly become accustomed to a raging UK property market with prices going higher and higher. Indeed despite governments and experts looking to talk down the market, investor demand continues to grow and until recently prices seemed on an upward spiral. However, if the Centre for Economics and Business Research (CEBR) is correct then we could see a dip 0.8% in UK property prices during 2015.
The same body believes we will see an increase of 7.8% in property prices across the UK during 2014 although there are already signs of a slowdown in some areas of the country with buyers now more choosy and sellers contemplating discounting prices for the first time in many years.
What has prompted this potential turnaround?
One of the main factors impacting the UK property market is affordability for the general public as opposed to investors. It is no secret that the affordability of the UK property market has been an issue for some time prompting successive governments to try and address the issue of social housing and affordable housing. This takes care of the domestic demand although what about investors who have been filling their boots with UK property for some time now?
Quote from PropertyForum.com: “After the 2007/08 financial crisis the UK government set up a committee to consider what if any additional tools the Bank of England could use if a similar event was to occur in the future.”
It is worth noting that affordability for domestic buyers does have an impact upon the investor market because it reduces the scope of potential buyers. We also need to take into account ongoing worldwide economic difficulties which never appear too far away from the headlines. There is also the issue of an increase in UK base rates this coming spring which may well be a token gesture but will remind investors that rates have been artificially low for many years now.
Could this downbeat assessment prompt a property market crash?
When you take into account the estimated increase in property prices of 7.8% in 2014 and a reduction of 0.8% in 2015, on the surface this looks fairly innocuous. It would signal the top of the UK property market in the short-term but there is also the potential for investors sitting on significant profits to cash in their chips. As we have seen in other markets around the world what begins as a gentle wave of selling could very quickly grow in pace and size although it is unlikely we will see a full-blown crash.
Historically, when the UK property market has dipped there have always been investors waiting to buy on weakness, investors who perhaps missed out on the initial upturn. Whether this is the case over the next couple of years remains to be seen because from a domestic point of view, and indeed a return on investment angle, even relatively small increases in UK base rates will eventually hit returns.
There is the potential for this forecast downturn in 2015 to go one of two ways, we could see some investors holding off in the hope of picking up cheap property in the short-term or sellers rushing for the exit to bank profits. It will be interesting to see whether the 0.8% reduction forecast by the CEBR turns out to be accurate because there are so many different factors which could come into play and 2015 is still a few months off.
Many have tried to talk down the UK property market and many have been left with egg on their face, will this time be any different for the CEBR?