Knight Frank reports that increased lending and improving prices in the United Kingdom (UK) real estate market is helping to further rumors of an economic recovery in the country. Concentrations of action in London and the south are driving the market, although improving confidence is having ripple effects elsewhere. The Bank of England has revised its economic forecast upward, a new government program is helping buyers get into homes and banks are offering better rates on loans, all of which are contributing to a great amount of momentum in the property market. Experts warn of inflation, but as of now observers are taking these developments as a good sign. For more on this continue reading the following article from Property Wire.
Average house prices across the UK are showing sustained growth amid a significant increase in mortgage lending as the whole market becomes more upbeat, according to the latest analysis from Knight Frank.
They rose by 0.8% in July, taking the annual increase to 3.9% amid signs that the UK economy is finally delivering convincing growth with some economists saying that it is approaching the point at which the recovery could become self sustaining.
The report shows that prime central London property values climbed by 0.5%, taking the annual increase to 7% but average rents in prime central London fell again in July, by 0.7%.
Optimism on house prices continues to rise and it seems that the pick up in economic activity is not purely based in the south, with a closely watched indicator of business recently indicating that activity in the North West hit a record high during the summer.
To cap it all, the Bank of England revised up its forecasts for economic growth in 2013 and 2014 to 1.4% and 2.5%, up from 1.2% and 1.7% respectively.
‘There have also been several positive developments for home owners and potential buyers, not least Bank of England Governor Mark Carney’s forward guidance on interest rates,’ said Gráinne Gilmore, head of UK residential research at Knight Frank.
Claim up to $26,000 per W2 Employee
- Billions of dollars in funding available
- Funds are available to U.S. Businesses NOW
- This is not a loan. These tax credits do not need to be repaid
‘The idea that Dr Carney, would issue some reassurance that interest rates would stay low for a year or two, had been trailed for quite a while. In the event, Dr Carney said that rates would not be raised until the unemployment rate fell to 7%, it is currently at 7.8%. Economists expect this to happen at some stage in the middle of 2016,’ she explained.
However, one of the key caveats to this 7% threshold is that if inflation looks as if it will rise above 2.5% over the medium term, usually considered to be in 18 to 24 months’ time, the Bank can step in to raise rates earlier,’ she added.
She pointed out that Dr Carney also made an interesting observation on Help to Buy, the multi billion pound government scheme designed to boost new housing construction, indicating that there may well have been some discussion about extending it beyond its initial three year term.
The first tranche of Help to Buy has been dubbed an instant hit by the housing minister, with 10,000 new home reservations in first four months of the scheme. ‘Low mortgage rates and the Help to Buy effect, have certainly helped boost optimism over the outlook for house prices. Demand for home loans has picked up, and this is reflected in data from the Council of Mortgage Lenders showing the number of loans granted to first time buyers in June this year rose by nearly a third compared to June 2012,’ said Gilmore.
‘House prices have also started to show some positive momentum, although it is worth noting that the average UK house price increase is more modest than the headline 3.9% annual rate once London prices are stripped out, perhaps closer to 1.5% to 2%. Investment activity has also picked up, with some 40,000 mortgages advanced for buy to let house purchases in the second quarter, the highest level since early 2008, although the number was still well below the highs of nearly 100,000 seen in the third quarter of 2006,’ she added.
Other positive notes include recent GDP data showing a significant 8.2% annual uptick in housing construction output between April and June, and new data from the DCLG shows that private housing starts picked up between April and June, rising by 7% compared to the first quarter of the year.
Gilmore also pointed out that the increase in demand for new homes is curbing the cost of capital for house builders, allowing development land values to rise by 1.8% outside London in the year to June.
Prices in prime central London rose by 0.5% in July, and are up 7% on an annual basis. Buyer interest remains strong for the best homes in the capital, with viewings in the year to date up15% compared to the same period in 2012, and sales volumes up by more than 8%. ‘Prices are being underpinned by the city’s reputation as a safe haven investment location, as well as the value of sterling. We recently raised our forecast for prime central London price growth for 2013 to 6%,’ said Gilmore.
Prime country house prices in England rose by 0.4% in the second quarter of 2013, but are still down 1.2% on an annual basis, while Scottish country home prices remained broadly stable in the second quarter.
Average rents across the UK remained unchanged in June. On an annual basis, rents are up 2.6%, below the current 2.9% rate of inflation. ‘While rental activity is still strong, the re-ignition of the sales market, especially for first time buyers, has put downward pressure on rents,’ added Gilmore.
Prime central London rents slipped again in July, falling by 0.4%. They are now down 2.7% year on year, but are still more than 21% above the low point they reached in June 2009.
The picture for rents across London’s prime areas is mixed. While rents are down compared to the beginning of the year in St John’s Wood, Mayfair and Notting Hill, rents are still rising in Kensington, Belgravia and Marylebone.
‘Our view is that it will be 2014 before we see more widespread and robust rental growth, however this will necessitate a further improvement in job creation in London’s financial sector,’ Gilmore concluded.
This article was republished with permission from Property Wire.