Property News: What will drive the housing market in 2015?
At this time over the last couple of years I have had a go at predicting what’s in store for the local sales market in the next 12 months. On both occasions, with a bit of good fortune and hopefully not too much smugness, I have got it mostly right; so here are my thoughts on this year and predictions for 2015.
Like any great football match, this year has been a tale of two halves. Although I forecast the majority of the growth in prices would come in the first half of the year I did not envisage the slow-down in demand from August onwards. The spectre of an interest rate rise was always on the horizon, which at some point would have slowed the market, but it was the MMR changes to mortgage borrowing requirements and the surprise resurrection of the Mansion Tax that really put the brakes on.
The change in mortgage criteria has meant that lenders are now lending 3 to 4 times salary as opposed to 5 or 6. It also means that all outgoing expenses, including school fees, dry cleaning etc.. are now considered when assessing someone’s ability to repay their mortgage. We have also seen the end to interest-only mortgages. This has all taken the froth off prices by simply reducing the amount buyers are able to offer.
The Mansion Tax proposal by the Labour party has created an uncertainty about future affordability too. The London market needs sales of £2 million-plus properties to keep the wheels turning and the temporary withdrawal of some of these buyers has affected demand across all price ranges.
So, the factors in the mix for 2015 are interest rates, the election, the economy and, as ever, supply and demand.
Financial markets are now predicting small interest rate rises for the middle of 2015 and that they will then rise gradually to 3% over the next few years. Although the UK economy is growing there is still some cautious sentiment amongst investors and businesses about the sustainability of this due to the weakened European economies. However, UK employment is on the up and the outlook seems set to fair. Recent low inflation of 1.2% means that interest rate rises are more likely to be after the general election.
Yes, the election. It seems to be the subject on most buyers’ and sellers’ minds at the moment and I suspect a lot of people are waiting for the outcome before making a decision about their property-owning future. I have just sensed recently that a consensus is growing that Labour will not get in this time around.
The low supply of new and existing property in London is well documented and West Hampstead is no different in this regard. Even though there has been a fall in demand, we have not witnessed a huge influx of property on the market, meaning that although price growth has stopped, achieved prices are not yet falling back from those set earlier in the year. If a property comes to the market at a realistic price there will be a healthy demand for it.
Property industry heavyweights Savills and Knight Frank are predicting growth between -0.5% and 3.5% for London in 2015. I believe that by the time of the election a backlog of demand will have built up and we could potentially see a strong market for London and West Hampstead for the rest of the year assuming the Conservatives are elected. Given that interest rate rises are likely to be minimal and that there are some excellent fixed mortgage deals available, together with confidence in the wider economy and continuing poor supply, I can still see enough room in the market for further increases of up to 5% across 2015 in our area, although this will all come after May.
As the next Property News will be in January, may I take this opportunity of wishing you all a happy Christmas and New Year and thank you for taking an interest in my articles to-date.
Benham & Reeves
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