A new report from the CBRE indicates that home prices in the United Kingdom (UK) could be set for large gains over the coming years. The five-year forecast cites the economic recovery, more robust lending options and a resulting increase in demand as reasons for the projected gains. CBRE analysts believe residential real estate prices could increase as much as 17% by 2018. New government programs like Help to Buy that are designed to help first-time homeowners into the market are also expected to contribute to growth, but experts also note that rising interest rates and prices will ensure that growth is tempered. For more on this continue reading the following article from Property Wire.
A pick up in demand underpinned by the economic recovery and improving lending coupled with a shortage of new homes are the issues that are set to push up property prices around the UK, according to a new analysis report.
There is a clear sign of pent up housing demand in core markets and the current conditions could lead to prices rising by up to 17% in the next five years, says the autumn 2013 report from CBRE.
It points out that the current upturn in the housing market has been facilitated by an improvement in lending conditions. The Funding for Lending scheme has helped drive lower mortgage rates and the Help to Buy equity loan scheme has been particularly successful, resulting in 15,000 reservations since April, and rising.
On top of this the bringing forward of the second phase of Help to Buy has sparked a surge in online traffic to residential property portals, with significant interest in London. ‘This is a clear indication of pent up demand in core housing markets. This second phase could help in the region of half a million buyers and has the potential to be a real game changer. Without doubt, it will underpin the market in the following couple of years,’ the report says.
‘As a result of Help to Buy, low interest rates, general improvements in the mortgage markets and a growing economy, we expect a real pick up in house prices and transactions next year and this growth should continue over our forecast period up to 2018 in line with the improving economy and consumer confidence,’ it explains.
It adds, however, that growth won't continue unabated. ‘In particular, we expect interest rates to increase midway though the forecast period. This, coupled with rising prices will squeeze affordability, naturally curtailing house price growth. There are risks on the upside from Help to Buy if it is too successful and over stimulates the market.
However, the Bank of England and Treasury will carefully monitor the market and will effectively pull the plug if it identifies signs of overheating. On the downside, risks come from affordability constraints; a strengthening pound and a further stagnation, or an absence of growth in real incomes, could suppress affordability and temper wider optimism’.
The report also points out that in London there is a growing group of developers keeping up the pressure on land prices. Land values, for small and medium sized sites with building consent, have increased over the past quarter.
‘A number of developers have specific gaps to fill in their order books for 2015/2016 and there is evidence of developers squeezing their margins to secure deals. Competition is likely to see land values push upwards over the next quarter,’ the report says.
In the south east, compared with the previous quarter, activity in the land market has continued to increase. More previously unviable land is coming forward, together with land becoming available though NAMA so competition for best sites has increased land values as the number and level of bids grows.
Inside of the M25 and across strong commuter and university towns activity has been driven by rising demand and restricted land supply. Increased activity across secondary towns outside of the M25 can be attributed to Help to Buy improving purchaser demand, most significantly in markets where sales values are between £200 to £300 per square foot.
Land values have broadly stayed flat in the south west over the last quarter but activity has increased with improved sentiment and the assistance of Help to Buy, although isolated to strong performing markets where a supply imbalance exists.
Demand from house builders remains focused on areas where the underlying demographics and sales rates are strong. House builders are keen to acquire immediate sites with consent but these are progressively harder to source. Strategic land and off market sites remain a key focus, whilst capital hungry sites and apartment schemes continue to remain a challenge.
The Midlands house building sector is seeing increasing activity with land values up 5% over the past quarter for the best sites. Consented land in areas £200 per square foot and above is in strongest demand. Large house builders are now beginning to factor forecasted house price growth into their land bids, as the drive to grow regional businesses continues and consented land becomes harder to source and more in demand.
The report also says that registered providers are now beginning to target certain sites for private housing and are outbidding the volume house builders in some instances. Private smaller house builders are still finding it difficult to source development finance at affordable pre-recession LTV’s so activity in that segment of the market is proving slow to take off in the Midlands.
In the north of England government assistance is providing developers with sufficient sales confidence to activate fully their land buying across most sectors, but with a focus on the first and second time buyer market. However, the regional players are still not returning to the market due to funding restrictions and hence the market is fundamentally Plc driven.
There is also renewed interest on city centre development, especially in Manchester, in the PRS sector with a number of funds currently assessing pre-sale opportunities. Yield expectations are by far more generous than in London, which is viewed as unfavorable due to overseas competition.
In Scotland house builders remain focused on the central belt and Aberdeen, but will consider secondary sites and sites in commuter belts. Values have been driven up in these secondary sites, helped by the willingness of planning authorities to review historic planning consents and renegotiate section 75 agreements.
This article was republished with permission from Property Wire.