While it seems almost inevitable that UK house prices will fall in the short to medium term so far the annual performance has remained positive. When you consider the issues facing the UK property market, and UK economy as a whole, how has the market remained relatively strong?
Mortgage reforms
When the UK government introduced an array of mortgage reforms, with the intention of maintaining long-term security, many suggested the new regulations would impact demand for UK property. Politicians fought amongst each other, investors grew concerned about the availability of finance and there were few people who had anything good to say about the reforms. However, if we look at the UK property market today could it be that the reforms have helped to avoid a slump?
Overextending finances
Tighter regulations effectively ended the 100% mortgage which was for some time a dark cloud hanging over the UK property market in the aftermath of the 2007/8 US mortgage crisis. It soon became obvious that many investors had over extended their finances, the reduction in property prices would push them into negative equity and many would either default on their mortgage or sell their property to crystallise a loss. This raft of forced sales placed pressure on the UK property market, at a time when investment markets were under pressure, leading to the inevitable.
Headroom
It is obvious that the tighter regulations, reducing the level of borrowings made available to purchase property, while also increasing minimum deposits, created headroom. This headroom effectively ensures that any short-term movement in property prices can be absorbed (at least to a certain degree) thereby reducing the number of forced sales and number of investors that were slipping into negative equity. As long-term investors in the UK property market began to appreciate there would be limited distressed sales they have begun to take advantage of the ongoing “correction”.
Immigration
As the UK population continues to grow, via net births and net immigration, this will continue to increase demand for housing. Many people fail to appreciate that while the UK will be leaving the European Union this will not end immigrants from Europe moving to the UK. They will simply need to adhere to current non-European immigration procedures and have as much chance as anybody of securing a move. It is also worth noting interest from the Commonwealth with regards to trade with the UK and despite recent immigration scandals many Commonwealth residents are still interested in moving to the UK.
Housing stock
It was interesting to see that the vast majority of UK housebuilders have been reporting broadly positive results with an encouraging view of the UK housing market in the short to medium term. The fact that the UK is unlikely to hit new home numbers required to fulfil existing demand means there will always be a shortfall. To a certain extent this shortfall will add a degree of support to current house prices.
It would be foolish to suggest there is no potential for further downside in the short to medium term but the “expected” crash in UK property prices is unlikely to emerge as a direct consequence of Brexit. It is also fair to say that mortgage reforms have helped to support the UK housing market – now who expected that?