Whilst 2012 was a mixture of fondness and frustration, looking back on 2013 you could argue that we actually saw some of the promise of 2012 actually being delivered.
In the mortgage industry at least the year kicked off relatively quickly and did not let up, with enquiry levels maintaining a high level right up to Christmas.
The Government have been busy trying various policy initiatives to try to help the beleaguered housing market and get lenders to lend; after New Buy, First Buy and of course the Funding For Lending Scheme, came Help To Buy and the cunningly named Help To Buy 2.
Meanwhile the arrival of Governor Carney and his “forward guidance” policy was meant to give us all a little more clarity of direction.
Indeed, Bank Base Rate stayed stable at 0.5%, but looking at SWAP rates we can see that whilst the cost of 1 and 2 year money has only increased a touch over the year; 3 & 5 year money is up quite a bit.
Last year we thought that in 2013 house prices would rise by at least 3%, Bank of England Base Rate would stay at 0.5%, mortgage lending would hit the £158 billion level, (quite a jump from 2012) and the FTSE would break 6,300 and work towards the 6,500 level.
Not bad all in all and once again the sentiment was bang on.
So, what of 2014?
Part 1 – House Prices
2013 Prediction: up 3%
2013: Actual up 3.2% – 8.4% (depending on the index!)
2014: Up 6%-8%
This really is a controversial area these days, with much argument, wailing and gnashing of teeth.
Once again last year we had a smattering of people predicting that house prices would finally fall, which really proved to be a colossal misunderstanding of the dynamics of the property market. Supply and demand, an improvement in mortgage availability and reams of Government assistance were always going to keep things level at the very least.
This is not to say, however, that prices are too high and need to level out, but the trend looks set to continue in 2014.
Although it is important to state that much depends on which House Price measure you look at, especially adjusting for inflation, the overall trend was up, with the main question being “are we in a bubble”, especially in London and the South East.
Halifax, as an example, stated the prices rose by 7.7% across the country whilst in London double digit growth was achieved of over 10%. The Nationwide Property Index put the figure in November as up 6.5% year on year, “the strongest pace since July 2010, though prices are still around 6% below the all-time high recorded in late 2007”.
Looking at London itself, growth was described as “astonishing” by Douglas & Gordon’s Chairman Michael Hodgson, where they recorded their sales values rising by 17% over the year and transactions at heights not seen since 2007.
Meanwhile, figures from the Land Registry which records property prices in England and Wales, have put the average national increase at 3.2%. They suggest house prices in London rose by 10.6% in the year to the end of November, far outstripping increases elsewhere.
Latest figures from Nationwide suggest the average price of a home is now £175,826 whilst in London it is £345,186, whilst the Office for National Statistics puts the average UK mix-adjusted house price at £247,000 and £437,000 respectively.
Housing transactions themselves have also seen a dramatic increase, with the Council of Mortgage Lenders, (CML) estimating the 1 million mark will be broken for the first time since 2007. According to HMRC the provisional seasonally adjusted UK residential property transaction count for November 2013 was 96,979, some 23.5% higher than the same month last year.
Meanwhile, the Royal Institution of Chartered Surveyors (RICS) noted that the proportion of chartered surveyors reporting prices rises reached 57%, an 11 year high. What is more they are beginning to see recovery in transaction levels in all regions.
However, as Simon Rubinsohn, RICS Chief Economist stated, “the amount of homes currently up for sale is still nowhere near enough to keep up with demand and – in order for the market to function correctly – this imbalance urgently needs to be addressed.”
The big debate is of course around the existence or not of a house price “bubble” and whilst various commentators, such as Halifax, and Savills argue it is “difficult to find evidence of a widespread housing boom or bubble”, there are nonetheless many who are worried.
Much of the worry has been put on the Governments latest offering of assistance, Help To Buy 2. Designed primarily to assist buyers with small deposits by providing more 95% Loan-To-Value mortgages, up to a maximum property value of £600,000, many believe this is a step too far.
Although it is far too early to say that this has had any real effect on house prices, it was interesting to note that in the first couple of months of operation, most of the uptake was outside of London with 80% of the loans going to First Time Buyers according to Halifax.
With an average loan of £153,104 against an average property price of £167,565 it was clear that actually it was being used where it was needed.
However, with January ushering in new lenders involved in the scheme we shall see if this changes. I suspect the £600,000 cap to be brought down as a concession to those worried which would be a sensible move and we could even see the scheme quietly scaled back sooner than thought.
In reality, the Help to Buy “effect” is already taking place, with other lenders now having the confidence to offer their own 95% LTV products outside of the scheme which looks set to continue.
All of this helps to increase the numbers of first time buyers, which according to LSL, rose by 28% year on year in November.
Taken together with an improvement in household sentiment as fears of economic double and triple dips subsided, meant that we are looking at similar growth in 2014. Any constraints will come from mortgage affordability if rates begin to increase, levels of deposit required and potential tightening of mortgage criteria as the Mortgage Market Review comes into force in April.
There is no doubt that London & the South East will yet again lead the way, with foreign buyers from Europe and both the Middle and Far East still investing, but improvement should follow elsewhere in the country as a “ripple effect” gains momentum.
As far a house price figure for 2014, RICS state 8% rise, Halifax concur whilst Savills and Knight Frank plump for 6.5% and 7% respectively. Even the perennial downbeat Capital Economics reckon 5% which could be an “underestimate”.
With the big issue still being a woeful under-supply of property while demand increases, a rise of 6%-8% looks likely, with London and South East again leading the way, before potentially easing and levelling out in 2015.
After all, sooner or later, it has to ease and level, doesn’t it?