Has the UK Property Market bottomed?

There is growing evidence to suggest that the outlook for the UK housing market is improving, writes Marc Da-Silva.

An old cliché, what goes up, must come down, is indicative of how property prices across Britain have tumbled over the past 18 months amid an astonishing global financial slump, following a decade of strong capital growth.

The squeeze on credit markets, combined with rising unemployment, has deprived many potential property buyers over the past year. This has culminated in drastically lower levels of demand, which has inevitably led to double digit price falls across Britain, as the worst financial crisis most of us have ever witnessed takes hold.

However, rather optimistically, the past few months have seen some encouraging property data, suggesting that better times could be around the corner.

The average price of a home in the UK is now £157, 713 a fall of over 16% year on year, according to Halifax but the rate at which prices are falling is slowing. The bank says that the annual rate of decline is now going down. The Market is still a little unpredictable however with Halifax reporting a 0.5% dip in June selling prices for example.

Earlier in the year the Nationwide Building Society reported a surprise increase of £3,000 in average residential prices, partly because of the Bank of England’s decision to cut interest rates and commence quantitative easing. Although average prices are now back to levels recorded in early 2004, Fionnuala Earley, chief economist at Nationwide, says that it is still too early to tell if the market has bottomed out.

“It will take time for these [economic measures] to work through into the housing market before we can expect a sustained recovery in house prices,” commented Earley.

Nevertheless, record-low interest rates, easing mortgage restrictions and drastically reduced property values have caused a renewed interest in UK property, a mature market that offers great prospects for medium-term to long-term capital appreciation.

The latest research from the Royal Institute of Chartered Surveyors (RICS) shows that demand for property is growing, particularly in London, which historically has led any market rally before rippling out nationwide.

RICS data reveal that new enquiries rose in June for the eighth consecutive month, as investors start to return to the market.

While the rise in property enquiries could be the first sign of a British market recovery, property market commentator Aaron Turner has urged caution.“It will be another three to four months before we can really say if these UK-based property investors are currently holding onto cash – an estimated £20.2 billion collectively – waiting for the right opportunity to cash in on the cheapest property prices before they rise again.

“Investing in property is safer than depositing cash in banks, a lesson that many have learned, the hard way, over the past few months,” Michael added.
With desperate vendors regularly accepting offers lower than the asking price, “there is now a window of opportunity for aspiring investors looking to invest in this market,” says Julian Sedgwick of Jones Lang LaSalle.

A spacious studio flat in West Hampstead, London, was recently sold for £109,000 “due to the owner’s economic circumstances”, says an agent at Anscombe & Ringland. A year ago a comparable property in the area, a desirable part of London, would have fetched closer to £200,000.

Population: 61 million GDP per capita 2008: $43,785 GDP growth 2008: 0.7% GDP forecast 2009: -4.1% Interest rate: 0.5% Inflation: 2.3% Unemployment: 7.1%

“Realistically priced properties, factoring in recent price falls, are generating an increasing level of buyer interest,” says Andrew Binstock, auctioneer at Sutton Kersh auction house. Talking to Jet-to-Let just before an upcoming property auction in London, Binstock highlighted two properties attracting significant buyer interest.

The first was a three-bedroom semi-detached house in Hull at a guide-price of £75,000, which Binstock projected, would achieve a sale price of around £120,000 – £20,000 less than what would have been achieved this time last year.

The other, a self-contained commercial workshop in a former stables mews terrace in Kentish Town, London, with the potential to be converted back into residential accommodation, had a guide price of just £100,000. Binstock expected the lot to fetch £200,000, which is £50,000 less than it would have sold for at the beginning of 2008.

“The properties in Hull and London have attracted enormous interest because they are cheaply priced, enticing purchasers looking for a potential bargain. This is generally the case for homes located across the country,” added Binstock.

A house at the lower end of the market in Liverpool, for example, which is where Sutton Kersh is primarily based, “would now typically sell for around £45,000, down from £60,000 at the peak of the market,” Binstock concluded. In Edinburgh Kathy Davies of Nelsons estate agency insists that prices are no longer falling and have levelled off.

She says that a traditional one-bedroom apartment in prime Princes Street, in the city centre, would now cost around £200,000, a fall of approximately 10%, while over in Tollcross a comparable unit would cost around £140,000 to buy, down from a peak price of approximately £160,000.

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With buyers of new-build homes in short supply, developers are bundling up unsold units across the country and selling them to investors in bulk at substantial discounts. Providing that correct research is done this can be a great way to get a bargain.

There is no doubting the fact that conditions in the housing market will remain tough for the rest of the year. But with signs of improvement, the current buyer’s market should be perceived as a once-a-generation opportunity to negotiate a bargain basement property purchase. The opportunity to buy property at what is potentially at or near the bottom of the market is a property investor’s dream.