Commercial insurance article archive
Residential property outlook 2008
The widely publicised credit crunch has taken a heavy toll on almost all sectors of the economy. None more so, however, than residential UK property, which must now reluctantly add credit-parched mortgage markets to its already ample list of woes.
In lieu of a more in-depth, and by now no doubt tiresome, run-down of the US sub-prime crash, a quick rattling off of the most salient features of the situation will have to suffice: irresponsible lending, widespread mortgage defaulting, collapsed sub-prime market, nervous portfolio-wielding investors,
ostracised lenders and finally the good ol' crunch itself. This tightening of available credit has inevitably hit the one place where it's needed the most - the mortgage market - the hardest, with the Bank of England notching up the lowest number of mortgage approvals in three years this October, a mere 88,000.
Worst of all, the dampening effect this inevitably has on the property market comes alongside an equally devastating and long-overdue slowdown in house price inflation. Nationwide's latest property report noted house prices falling at 0.8 per cent in November - their fastest rate in 12 years; while the Land Registry recorded 0.6 per cent falls for London the month before - a dramatic about-turn given that the capital's property market notched up 18.6 per cent growth in the previous year.
Other reports from Rightmove, Assetz, Halifax and the like do a fantastic job of muddying the waters and casting doubts on an otherwise clear trend - but take a look at what the market foretells, rather than what is cumbersomely tries to interpret a posteriori, and there can be little doubt that the residential
property wagon is well and truly careening off the dirt road (without - necessarily - plunging off the cliff and falling to its doom).
To begin, however, with the most ominous of doomsday predictions - for dramatic effect if nothing else - recall the International Monetary Fund's (IMF) recent warning that the UK housing market is overvalued by some 40 per cent. The report warned that Britain's manic 227 per cent house price growth since 1996 significantly outstrips the pace seen in the US prior to its ongoing downswing and that the market needs to brace itself for a dramatic "price correction" in the near future.
That sure enough sounds like a euphemism for an apocalyptic, recession-dawning property crash, though it's worth bearing in mind that the majority of analysts actually consider the IMF's prediction to be a gross overstatement.
There's no doubt that UK property prices have been growing at an unsustainable level - due in large part to the country's chronic housing shortage and an influx of foreign investors - but on the heels of the property crash of the early nineties that is largely to be expected, and most forecasts predict a softer, though still markedly uncomfortable, landing. Nationwide and Rightmove have both predicted static growth for 2008 - while for Market Oracle and estate agent Firstrung, a double-figure percentage fall in prices over the next two years seems the more likely outcome.
So, whether we're headed for a prolonged period of zero growth or a dreaded return to negative equity, there can be little doubt that the shine has begun to fade on UK property - something that has clearly not escaped the notice of the country's struggling estate agents.
You might think that market uncertainty and the difficulty of acquiring mortgages would result in estate agents seeing falling levels of activity. And while this is certainly true for gross sales - with the Royal Institution of Chartered Surveyors (Rics) recording the lowest level of home sales since April 1999 - in fact the number of new stock being listed on estate agents' books actually grew 8.8 per cent in October.
Far from being a positive development, however, this upsurge - coming on the back of nine consecutive monthly drops in buyer enquiries - could actually mask a rather ominous status quo. Analysts speculate that the recent surge in new listings embodies not a recovery of the market but a panic-driven rush,
primarily by short-term investors, to sell before the market tumbles. Furthermore, the knock-on effect of any such predicted fall in housing transactions will likely be to stunt consumer spending on the furnishings that typically accompany new home purchases, thereby dampening the wider economy still further and continuing to undermine prospects for a recovery.
Harbouring these and other concerns, some 34 per cent more surveyors now expect prices to fall rather than rise according to the latest Rics report - though a cautionary note should be added that the recent surge in new listings could also be entwined with the roll-out of the government's controversial Home Information Packs (Hips) scheme.
The programme was designed with the noble intention of increasing transparency in the home-selling process - primarily by supplying all relevant title documents in one tidy package - but since its inception it has been wrought by concerns over costs and red tape. With worries abounding over last month's expansion of the scheme to three-bedroom properties, some analysts therefore suggest that October's unexpected surge in listings simply marks a rush by sellers to avoid the hassle of the packs.
Whatever its cause - indeed, whatever the precise state of the market - both the continued absence of interest rate relief and the credit crunch's negative impact on overall economic growth look set to keep the pressure firmly on UK property. And with the City's new futures housing contract tentatively betting
on a seven per cent fall in UK house prices, it seems the only thing certain about next year's residential property market is that it won't be pretty.
Arwel Griffith of WJ Meade Chartered Surveyors in east London summed the situation up in a pithy Financial Times interview: "All poor news on the 'eastern' front," he lamented. "Poor inquiries, poor stocks, poor prospects."
13 Dec 2007