LONDON: The UK housing market rose 3% in the second quarter of 2014 with London house prices leading with 26%, as stated in CB Richard Ellis (CBRE)’s report “Regional development land: A market in recovery”.
London’s land values are buoyant with strong demand for Zone 1 land and strengthening demand for Zone 2 and 3.
“Popular lots range between £10 million (RM54 million) to £20 million in Zone 1 and £5 million to £15 million in Zones 2 to 3,” the report said.
London has led the way for the past few years, with a 15% increase in 2013, whereas growth in northern regions lag behind with 2% to 5%.
“Outside of London, the Outer Metropolitan area was the strongest performing region, with an annual price growth of 16.4%, while Yorkshire and Humberside were the weakest English regions, with prices up 7% over the year.”
This rise in the UK residential property market is caused by renewed buyer confidence and a release of pent-up demand outweighing supply, a trend typical at the start of a market recovery.
“The housing market has rebounded over the last year with a marked pickup in prices and sales. We expect 2014 will be the peak year for growth with more modest and sustainable increases in the coming years,” the report mentioned.
The Council of Mortgage Lenders estimates a gross lending of £18.4 billion in April, probably due to the easing of mortgage approvals and new regulations. Property transactions have exceeded 100,000 for the past five months despite moderation of new buyer enquiries.
Even with the rapid price growth, continued gains are cushioned as all regions aside from London have prices well below peak levels; northern regions’ real house prices are around 25% off their pre-recession levels and southern regions’ prices are around 12% lower than peak.
“At current interest rates, house prices could more than double before affordability becomes constraining,” said the report.
There is general upswing in activity in other regions, particularly in city centres such as Birmingham, which is seeing significant land and office to residential transactional activity.
Coventry, Nottingham and Leicester are also strong candidates for new apartment development during this period. Manchester city centre is active with upcoming apartment schemes and planning processes for new sites brought to the market. Liverpool is also active though a little behind the Manchester market.
The report states that there will be a gradual cooling towards the end of the year and going into 2015, with a more modest and sustainable annual price growth expected over the subsequent five-year period.
This is mostly due to the Financial Policy Committee (FPC) measures possibly dampening demand and the mortgage cap, meaning lenders cannot exceed a 15% of new lending over a 4.5% income multiple.
“The northern areas may be impacted less by the FPC cap. In contrast, the cap will be felt strongest in London where the average property prices are now over £400,000,” the report said. “A definite rise in interest rates will contribute towards the continued market cooling. When rates do increase, slow and considered increments are expected, therefore mortgage affordability may be minor and contained.”
Both wage growth and positive price growth and a return to a more “normal” performing housing market are anticipated with significant momentum to support modest house price growth.
Future house price growth will continue to be underpinned by underlying lack of housing supply due to the imbalance between the population increase and the increase of housing supply.
This article first appeared in The Edge Financial Daily, on August 8, 2014.
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