A perfect storm: The forecast for the property market in 2012
House prices are down, supplies of new homes are below target and frustrated first-time buyers are struggling to get mortgages...
Friday 30 December 2011
Put on that Christmas jumper, zip that winter coat and turn up that collar. Next year's housing market forecasts are almost polar in their chilly bleakness. "There's never been a set of circumstances similar to those we're experiencing. House prices are on average around 11.5 per cent lower than their 2007 levels across the country, supplies of new homes are way behind government targets and there's pent-up demand from frustrated buyers due to lack of lending," Nick Barnes, of the Chesterton Humberts estate agency, says. The perfect storm? Perhaps not quite, not yet. But whether you are a homeowner, renter or investor, the year ahead looks bleak.
Estate agents outlook: becalmed
Estate agents at the top of the market – especially London – enjoy massive commissions on house sales. Yet many agents in the more depressed provinces genuinely struggle to survive. The National Association of Estate Agents says about 20 per cent of agency offices across the country have shut since 2007, mostly in the Midlands and further north.
"Turnover is the main casualty of this recession," Lucian Cook, head of research at Savills, says. Sales volumes in 2011, expected to be 530,000 across the UK, are at a 40-year low and are less than half 2006 levels. No forecaster expects next year to be any busier.
Agents are especially pessimistic that 2012's two large show-stopper events – the early June four-day Queen's Jubilee weekend and the summer Olympics and Paralympics – will distract buyers and sellers, effectively reducing the peak sales season to a three-month window from early March until late May.
A Happy new year? Perhaps only for bargain hunters and those who do not need a mortgage to buy a home.
Central London outlook: sun, mostly from the Continent
Nothing succeeds like excess, especially in Mayfair, Belgravia, Chelsea, Notting Hill or Docklands. A typical home across the UK costs about £100 per square foot but in 2011 some £6,000 per square foot was paid for flats in One Hyde Park – and that figure will be beaten in the spring.
Christies, the estate agency selling the Bulgari Apartments – seven flats nearing completion in Knightsbridge and trading heavily on their association with the Bulgari luxury-goods brand – is already boasting of almost £7,000 per square foot being demanded for one unit. Forecasters say central London's market, now nick-named "Britain's Monaco" by some estate agents on Twitter, will see price rises of 5 per cent or more in 2012. Most buyers will be the super-rich from overseas, attracted by Sterling's poor exchange rate and the prospect of purchasing via off-shore companies to avoid stamp duty.
Global uncertainty is making property professionals rub their hands with glee. "The top-end will strengthen with almost no limit," Gary Hersham, of the exclusive London estate agent Beauchamp Estates, says. "The Arab Spring and concerns in Russia about elections have caused an increase in buyers," says Camilla Dell, of Black Brick, a buying agency advising wealthy foreign clients.
The first-time-buyer outlook: cloudy with very occasional sunny intervals
The bad news is that the first timers' stamp-duty holiday, initiated by the former Labour government, ends in April, adding hundreds of pounds to purchase costs. The good news – perhaps – is the Government's mortgage indemnity system is kicking in and offering first-time buyers 95 per cent mortgages.
A disadvantage of the new scheme is that buyers must buy new-build homes (above), with their inevitable premium prices; in addition, a mere 6 per cent fall in prices may see a purchaser with a 95 per cent mortgage plunged into negative equity by next Christmas.
But more options are available. In January, Linden Homes will be the first builder to offer the indemnity scheme (it calls it "step up") and will operate a loan scheme (called "deposit assist") to help young buyers create a larger deposit on a new home and get more favourable borrowing rates on a loan of 85 per cent. "Affordable, responsible lending is critical in helping to boost... the house-building industry," Linden's Ian Baker says.
The existing-homeowner outlook: cold with heavy rain
You know the market is in the doldrums when even estate agents admit that gloom dominates the short term. After four years of minor price falls outside London, 2012 will be more of the same, Knight Frank predicts. Relatively high inflation also means nominal rises forecast for future years and real values will take a beating.
"Prices fall in nominal and real terms in 2012, followed by low nominal growth but real-value falls in 2013 and 2014 before a slow recovery in prices post-2015," Knight Frank research expert Liam Bailey says. This forecast assumes there is not an apocalyptic outcome to efforts to resolve the eurozone crisis.
The agency says the biggest falls next year, of between 5 and 7 per cent, will be in Scotland, Wales, Northern England and the Midlands, which will also take longest to "recover". Unusually, almost all other estate agents making nationwide mainstream predictions share this pessimistic outlook. The one exception, again identified by all market analysts, is central London.
The renter outlook: storm damage
If you are a tenant you might want to pull the duvet over you on New Year's Day, then stay in bed for the year ahead.
Rents will rise by an average of 5 per cent across the UK, the property consultancy Jones Lang LaSalle says. With inflation at 5 per cent, that could be the equivalent of a 10 per cent hike in housing costs for those reliant on the private rented sector.
Soaring rents are fuelled by high demand from frustrated buyers and low supply thanks to a paucity of homes being built and buy-to-let landlords struggling to get mortgages.
The irony is that central London's corporate tenants – often from overseas, working on short-term contracts in the City of London, enjoying hefty expense accounts and renting some of the world's most expensive houses – are likely to be hardest hit with rent increases of 10 to 15 per cent in this niche sector. Mark Farmer, of property consultancy EC Harris, says 2012 will be the year when the UK starts "a forced... shift away from home ownership."
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