Real Estate Marketing & Beyond
Rising inflation and a worsening economic outlook is set to suppress the UK housing market for the next five years, according to a report by Savills. The Bank of England has just voted to keep interest rates at their current record low of 0.5%, and markets are not expecting any increases before 2013.
UK Housing outlook remains poor © Matthew Pritchard - Fotolia.com
Low interest rates are expected to suppress the amount of distressed stock entering the market so that any sharp price falls should be avoided, but a period of little or no growth is being forecast. According to the report, the government austerity measures have impacted household finances and homebuyer confidence, leading to falling transaction levels. Property prices are being held up by low transaction levels and low interest rates, and Savills is predicting only a small price fall of -2% next year, followed by growth of 6% between 2012 and 2016, although there will be substantial variations in price growth between regions.
London is expected to see relatively strong growth at around 19.1%, with the South East predicted to see price growth of 15.7%, while the eastern regions will see growth of 14.1%. However little or no growth is forecast for the northern regions. Prime property in London is being forecast to see average growth of 22.7% compared to a national average of 15.1%. Good price growth in these markets is being forecast due to their lower reliance on financing.
By the end of 2011 Savills expects around 850,000 residential sales to have been completed which is a little over half average number of annual sales before the global crisis. Nowadays property transactions tend to involve higher levels of equity and less debt than before, and average house prices are still around 9.5% less than peak values.
However when you add inflation into the mix things become a little less comfortable. Inflation levels are currently more than double the government target at 5.2%, and during the past few years house prices could always be relied on to outperform inflation by around 2.5% annually. The recent downturn has meant there has been little real growth, and the average house price is now at around 2003 levels.
