Residential Property Focus Q4 2013
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In our latest Property Focus, we look at a UK housing market that is both diverse and fragmented, where conflicting signals on activity and price growth challenge those who are trying to put together the jigsaw puzzle of house price forecasts. To help put the pieces together and complete the picture, the articles focus on key topics: • The extent to which there is capacity for house price growth without creating a bubble • The graphical pattern of growth given the outperformance of London over the past eight years • The potential for transactions to increase and the implications which this has on demand in the private rented sector
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Residential Property Focus Q4 2013
- 1. Savills 2013 Forecasts Piecing together the housing market Lucian Cook 5th November 2013
- 3. Understanding the shape of the market Average 1992 - 2002 Average 2002 - 2007 Year to Q2 13 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 FTB Mortgages Source: HMRC, CML, Savills Home Mover Mortgages BTL Mortgages Cash Transactions
- 4. Q4 80 Q4 81 Q4 82 Q4 83 Q4 84 Q4 85 Q4 86 Q4 87 Q4 88 Q4 89 Q4 90 Q4 91 Q4 92 Q4 93 Q4 94 Q4 95 Q4 96 Q4 97 Q4 98 Q4 99 Q4 00 Q4 01 Q4 02 Q4 03 Q4 04 Q4 05 Q4 06 Q4 07 Q4 08 Q4 09 Q4 10 Q4 11 Q4 12 Annual House Price Growth Annual House Price Growth 30.0% 80% 20.0% 75% 70% 10.0% 65% 60% 0.0% 55% -10.0% 50% 45% -20.0% 40% Source: Savills, Nationwide Surplus Net Income after House Purchase House price growth and mortgage affordability Affordability 85%
- 5. UK mainstream forecasts 2014 2015 2016 2017 2018 5 years to end 2018 Disposable Income Growth 3.1% 3.4% 4.3% 5.8% 5.5% 24% Bank Base Rate 0.5% 0.5% 0.8% 1.8% 2.8% N/A Average Mortgage Rate 3.6% 3.6% 3.8% 4.4% 5.0% N/A UK House Price Growth Forecast 25% 6.5% 5.0% 4.5% 4.0% 3.0%
- 6. House price growth and mortgage affordability Annual House Price Growth Price Forecast Affordability Affordability Forecast Annual House Price Growth 30.0% 80% 75% 20.0% 70% 65% 10.0% 60% 0.0% 55% 50% -10.0% 45% Source: Savills, Nationwide Q4 18 Q4 16 Q4 14 Q4 12 Q4 10 Q4 08 Q4 06 Q4 04 Q4 02 Q4 00 Q4 98 Q4 96 Q4 94 Q4 92 Q4 90 Q4 88 Q4 86 Q4 84 Q4 82 40% Q4 80 -20.0% Surplus Net Income after House Purchase 85%
- 7. 0% House price growth 40% So what does a bubble look like? SALES STAGNATION BUBBLE Significant issues of deposit & mortgage affordability leading to price falls at end of period High deposit requirements constrain transactional activity in the mortgaged market FORECAST Earnings led price growth with gradual recovery in transaction levels PRICE STAGNATION Unlikely given capacity for price rises based on current levels of affordability and prospects for growth in household income 3.5% Erosion of mortgage affordability resulting static house prices and falls in real terms Mortgage Rates 7.0%
- 9. Help to buy - mortgage guarantees £12 billion of guarantees £130 billion of potential lending Who can meet the lending conditions? Will high interest costs deter potential buyers? Lender & Borrower Demand Remortgaging House Purchase 165,000 loans 325,000 transactions Spread over 3 years across the second hand and new build market
- 10. Transaction forecasts Mortgaged FTB* Mortgaged Home Mover* Mortgaged BTL Cash Buyers Help to Buy - Equity Loan Help to Buy - Mortgage Guarantee 1,800,000 1,600,000 1,400,000 1,200,000 380,000 1,000,000 800,000 330,000 600,000 76,000 400,000 309,000 200,000 95,000 450,000 290,000 223,000 Average 2002 - 2007 Source: HMRC, CML, Savills Year to Q2 2013 2014 2015 2016 * Excl Help to Buy 2017 2018
- 11. Transactions and levels of private renting Current Home Owners Households 0.96m 1.22m Current Transactions 2018 2018 17.74m 17.40m Current Private Renter Households 2018 4.80m 5.83m
- 13. A market divided v Pre Crunch Peak Land Reg Annual Price Growth Nationwide Land Reg 15.0% 12.0% 10.0% 10.0% 5.0% 0.0% 8.0% 6.0% -5.0% -10.0% -15.0% 4.0% 2.0% -20.0% 0.0% -25.0% -2.0% -30.0% -4.0% Nationwide
- 32. London as multiplier of UK and South East 1.00 Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… Q4… London’s relative pricing London v UK 6 years 9 months Source: Nationwide London v SE 7 years 9 months 2.00 8 years 6 months 1.90 1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10
- 33. Barking & D'ham Newham England & Wales Bexley Croydon Havering South East Hillingdon Sutton Enfield Redbridge Greenwich Bromley Harrow Waltham Forest Hounslow Barnet Kingston Lewisham Tower Hamlets Ealing Brent Greater London Merton Haringey Richmond Southwark Lambeth Wandsworth Islington Hackney H'smith & Fulham Camden Westminster RBKC London price growth since June 2005 140% 120% 100% 80% 60% 40% 20% 0% Source: Land Registry
- 34. Taxing times Stamp Duty Annual Charges Capital Gains Tax Mansion Tax Source: Savills Research
- 35. Taxation taking some of the heat out of the market Lower Prime 50% Annual Price Movement 40% 30% 20% 10% 0% -10% -20% -30% Source: Savills Prime London Index Upper Prime Ultra Prime Non PCL
- 36. Prime London forecasts Assuming no further changes in the taxation of high value property 2014 2015 2016 2017 2018 Prime Central London 23.1% 3.0% -1.0% 8.0% 6.5% 5.0% Other Prime London 22.7% 6.0% Source: Savills Research 5 years to end 2018 0.0% 6.0% 5.0% 4.0%