At this moment in time you could quite literally pick up a newspaper on a different day of the week and see some very different stories about the UK property market. Only a few days ago there were serious concerns that the UK economy was slowing, inflation would pass the Bank of England’s target and there was a need to keep base rates as low as possible for as long as possible to support the economy. Then today we see a report from international real estate advisor Savills suggesting that UK property prices will on average rise by 17% before the end of 2020.
So, what is really going on in the UK property market and why is there so much uncertainty about the short, medium and long-term direction?
Interest rates are the key
Many experts now appreciate that the timing of future interest rate rises is the key to the short to medium term performance of the UK property market. The Savills report suggests that property price rises until the end of 2020 will range from 21.6% in the south-east of England to a disappointing 12% in the north-east. However, there is a very strong proviso that UK mortgage rates do not exceed 4.5% during that period.
Nobody should really envy the Bank of England because if it increases base rates too quickly then property prices will suffer and if it is too slow to increase base rates this will create a property bubble and affordability issues further down the line. In the aftermath of the 2008 US mortgage led crisis, which led to worldwide economic downturn, the situation at the time was described as “unique”. Well, this unique situation continues today and balancing economic growth, inflation and property prices is anything but easy.
London set to take a breather
It was interesting to see that London property prices are an average expected to increase by 15.3% to the end of 2020. The regional variation across the capital will range from 10% up to 20% and while the average growth is slightly less than the expected UK average we must not forget the boom years that London has enjoyed of late. This is a market which continues to defy gravity, attracts more and more overseas investors and for many people the affordability issue well, it doesn’t seem to be an issue!
While it is sensible to take long-term projections about the UK property market, and in particular London, with a pinch of salt, these reports certainly give us food for thought. It was also interesting to see that overall UK annual transaction levels are set to increase from around 1.2 million this year to 1.3 million in 2020. This growth is not exactly world beating and when compared to the pre-credit crunch levels of 1.7 million per annum perhaps everything is then put into perspective?
Each day seems to bring differing reports about the UK property market, economy and potential date when interest rates will rise. The reality is that anybody looking to invest in the UK property should do their homework, read the latest reports and then make their own decision. If you depend upon outside sources to dictate your future strategy there is nothing but confusion and mayhem out there!