Property prices in the UK increased by an average of 1% between 9 December 2013 and 11 January 2014. The festive period is traditionally a time for reflection in the UK real estate market with prices falling over the last 10 years by an average of 0.2% at the turn of the year. However, data released by Rightmove will alarm many people as it confirms that the UK property market is still very strong and recent suggestions of overheating appear to have been ignored by many.
This is not the first sign that the UK property market is in a very strong upward cycle with growing demand for the UK government’s Help to Buy scheme, foreign investors looking towards the UK and a raft of new mortgage arrangements coming to the market. There has been some concern about potential overheating for the last six months although yesterday’s announcement by the IMF, that UK economic growth will be even stronger than anticipated, does give a little more credence to the ongoing improvement in property prices.
Does the economy support property price rises?
At this moment in time annual price growth in the UK property market is running at around 6.3% which is the highest rate since 2007. There is no doubt demand for property across the UK, both outright purchase and rental properties, is rising and an improvement in the UK economy is assisting this phase of development.
Quote from PropertyForum.com : “The Select Property report entitled “The international investor’s guide to the UK property market” has cast a very interesting light on the habits of international investors with regards to UK real estate.”
Just yesterday the IMF suggest that UK economic growth will be greater than expected just a few months ago, which has breathed yet more life into the UK property market and investment arena. There are signs that more properties will be coming online during 2014 but there are also concerns that the “right type of properties” are still in relatively short supply – which will squeeze some areas of the property market yet higher in the short to medium term.
What can the government do to cool down property prices?
Just six months ago the UK government and the Bank of England suggested there was little in the way of concern about UK property prices although this may have changed over the last few weeks. The government is fuelling demand for UK property with its Help to Buy scheme and any moves by the Bank of England to stall the market in the short to medium term would obviously be counter-productive – with the UK government adding additional finance to the market.
We may see some cautious comments from the government and the Bank of England in the short to medium term, we may see rumours of an increase in medium-term base rates but in reality there is little the authorities can do at this moment in time. Previous attempts to talk down the UK property market have failed, foreign buyers still flock towards London and indeed international investors and domestic investors are now looking outside of the capital. It will be interesting to see if the strength in UK property prices continues in the first half of 2014 or indeed whether the authorities can eventually take some of the steam out of the sector.