Will a recovery in European real estate prices slow down the UK property market?
As the UK property market continues to go from strength to strength there is real concern that additional demand in 2014 could cause major problems. It seems that many overseas investors believe that the UK property market is something of a “safe haven” during these troubled times within Europe. In some ways the UK market gives exposure to Europe without the added problems associated with the currency, i.e. the euro.
As a consequence, despite the fact that many believe UK property prices are moving towards dangerous territory, it may take a recovery in the European real estate market to prompt a slowdown in the UK.
Is Europe on the verge of recovery?
While the headlines over the last few months have been nowhere near as dramatic and damaging as though seen over the last two years it would be wrong to suggest that Europe is on the verge of recovery. Even markets where there has been renewed interest in real estate, i.e. Spain, Portugal and Greece to a lesser extent, much of this new demand is partly as a consequence of various government concessions such as residency visas.
One other issue holding back the European real estate market is the massive array of properties held by Spanish, Portuguese and other national banks after their customer’s defaulted on mortgages. We are literally talking about billions of euros which will take some time to drip feed into the market and this will be very much in the minds of professional investors.
Quote from PropertyForum.com: “While the UK property market is flying high, some experts believe there is further to go and others are not so sure, perhaps now is the time to reconsider your investment portfolio.”
UK economic recovery
In 2014 experts believe that the UK will show one of the highest economic growth rates in the developed world which is also attracting the interest of international investors. It would be true to say that the ongoing recovery will take some edge of the current real estate valuations, because income and economic activity will catch up to a certain extent, but this could fuel yet more interest. Indeed the UK government and the Bank of England have expressed concerns in public with the Bank of England forced to deny plans to increase base rates in the short-term.
If the UK real estate market continues to move ahead the fact is that the Bank of England, possibly against its better judgement, would have no choice but to increase base rates ahead of the next election in 2015. This would certainly impact property prices as the cost of finance would rise for the first time for many years and bring home a startling reality to some investors, who have perhaps become used to very low interest rates and finance costs.
Worldwide real estate markets
While there is still trouble in Europe, the Australia market and the US market to a certain extent have themselves shown signs of recovery. There are also other markets around the world which are beginning to recover and they should in due course take some shine off the U.K.’s so-called “safe haven” status. This should reduce the pressure on UK property prices although at this moment in time it still looks to be some way off and we can only estimate how high UK house price will move in the meantime.