Knight Frank's Sandy Davenport on the Property Market
PUBLISHED: 11:46 04 November 2011 | UPDATED: 20:14 20 February 2013
Sandy Davenport, Head of Waterfront, Knight Frank, reviews historic price growth and explains how it can help us understand how the market is likely to perform in the future. Plus some good news for waterfront property owners in the South West.
Sandy Davenport, Head of Waterfront, Knight Frank, reviews historic price growth and explains how it can help us understand how the market is likely to perform in the future.
Whilst the UK housing market is influenced by a wide variety of factors, Knight Franks Residential Research has pinpointed five key indicators, which shed light on the state of the property market.
The balance of new supply and demand
The cost of borrowing
Household income growth
The UK Economy
All these factors were looking up in the extended boom period through to 2007. A combination of high demand for housing, a shortfall in new housing supply, easily accessible and relatively cheap mortgages plus rising household incomes, all served to push prices and transactions to very high levels.
In early 2008, mortgages became harder to obtain as lenders reduced their exposure to the market and household incomes came under pressure from the weakening economy and rising inflation.Prices began their sharp nose-dive in 2008. But later that year the Bank of England slashed interest rates and with the effect of lower new-build supply, prices bounced back in 2009 through to 2010.
By 2011, however, the benefits delivered by ultra-low interest rates had become insufficient to offset the increasing pressure on household finances as unemployment rose and wages lagged behind inflation. Prices and transactions have once again begun to slide. The impact of very low interest rates has been to place the housing market in suspended animation.
Though there are few forced sales and repossessions, the support for prices against a backdrop of weaker access to mortgage finance means first-time buyers and upsizers are being kept out of the market and transaction volumes are static.
Knight Franks research points to three scenarios, one being very unlikely with the remaining two as real possibilities.
The least likely scenario estimated at around 5% likelihood, would be a rapid global economic recovery leading to improved UK employment conditions and household finances. In this scenario, prices would stabilise with a return to growth and a related upswing in property transactions.
The Sharp Correction:
This has an estimated likelihood of 20% and is a scenario where a trigger event would create conditions similar similar to those in 2008, with rapid price falls and an equally rapid return to more stable pricing. Under this scenario transaction volumes would fall from even todays depressed levels.
The Slow Correction:
This is the most likely at an estimated 75% and is a scenario where very low interest rates are maintained in the medium term, but transaction volumes are still muted. Prices would fall in 2012 followed by low nominal growth, which would be a fall in real terms in 2013 and 2014. A slow recovery in both prices and volumes post-2015 would then be indicated.
Better News for Prime Waterfront Property?
The widening gap between prime country and London property will begin to underpin the country house market in the medium term, especially when we see a return to stronger domestic economic growth. To illustrate this point, property owners planning on selling a 5m property in London in early 2009 and buying a property for a similar price in the country, delaying for two years until now would have seen the London property rise in value to around 6.75m and the country property rise to around 5.5m at best, leaving a 1.25m margin for reinvestment. This opportunity is likely to result in more money moving from London to the prime markets in the south of England from 2013 onwards.
Current good news for the South West is that waterfront properties are still extremely popular.
As Head of Waterfront for Knight Frank, Sandy Davenport explains, waterfront properties continue to attract buyers and generally sell quickly.
Historically, waterfront houses have held their value better than a typical country house during difficult selling periods and Knight Frank has certainly proved that this is still the case. Even in early 2011, when the property market was exceptionally slow, Knight Franks team successfully secured competitive bidding on some of its waterfront properties, pushing prices well above the guide. Needless to say this has led to some very happy clients.
The special attraction of homes with sea, estuary and river views means there will always be a market for the limited supply of top-quality properties available. These will probably achieve premiums of up to 40% over a corresponding property without a view.
Sandy Davenportis Head of Knight Frank Waterfront and is marketing: 21 Noss Mayo; Folly Cottage, Polruan; Port Quin, Port Issac and Mariners Salcombe.
Contact: Sandy Davenport, Knight Frank Tel:01392-423111 07831-576633
About Knight Frank:
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