- Positive annual growth in 2009 as a whole, as previously forecast by Assetz
- Housing supply will continue to be poor underpinning prices in the face of substantial demand
- Developers will start to sell off-plan again as a necessity to obtain development finance
- Increased competition in mortgage lending will lead to better deals for borrowers in Q1 2010
- Significant rental income increases forecast for city centre
Stuart Law, Chief Executive of Assetz, examines the outlook for the housing market in 2010:
“2009 is already well on its way to ending the year with positive annual growth of around 5%, as we forecast to much derision early this year. The next twelve months are likely to bring modest further growth in house prices and the UK could well end next year with an overall 5% increase.
"Whilst the level of house price growth will slow from the current rate of 12% per annum seen over the last six months to be more moderate, there is little evidence that the double dip, a fall to new lows, predicted by many commentators will come to fruition in 2010.
Regional Outlook
“Central and South West London are already experiencing better than average house price growth and are expected to continue leading the way in the house price recovery into 2010. South West London will continue to see an above average level of growth as families seek to move to larger properties in the area. These family movers will also push up house prices in the suburbs of all of the major UK cities.
“Scotland and the South East look well placed to strengthen and in addition, prime holiday resorts in the South West in areas such as Devon and Cornwall are also set to see relative strength as many investors are realising that holiday homes in the UK can be just as attractive as those abroad.
“There will, however, be significant challenges in areas with large numbers of manual labourers, below average wages and a higher incidence of credit-challenged borrowers. These locations, which are scattered through the whole of the UK, will see weaker pricing and may even experience falls next year, underlining the increasing gap between the haves and have-nots in this new housing market.
Underlying Factors
Supply of Property:
“There is an expectation that recent house price strength will bring a flood of sellers return to the market, but any increase is likely to be steady and still outweighed by the larger number of buyers now looking to make their move.
“The current undersupply of property is likely to worsen, as housebuilders struggle to deliver any substantial increase in new properties in 2010. Developers are only going to be building around 100,000 units next year whereas at the peak this was around 180,000 units a year, versus a 240,000 Government target.
When coupled with the existing undersupply, this shortfall will provide a major upward pressure on house prices in 2010. In trying to address this lack of supply, housebuilders will return to selling off-plan to enable them to obtain better development funding, a trend we have already seen starting again in Central London this year.
Interest rates:
“Base rates will eventually start to rise, probably in the second half of 2010, and will likely rise to between 1% and 2% by the end of the year. There is a possibility that we could end 2010 with a 3% base rate if the economy begins to rebound strongly but at the moment we cannot see any leading indicators suggesting this.
Mortgage lending:
“Mounting Government pressure on lenders to reduce margins and increase lending will be one of the catalysts for maintaining affordability for new property buyers. This will keep payable mortgage rates suppressed even whilst the base rate is rising. I expect lenders to move to offer more attractive products to borrowers within three months of all of the major house price indices moving into positive annual growth, which probably means improving lending terms in the first quarter of next year.
Unemployment:
“I expect unemployment to top out at between 2.5 and 2.7 million, well below the predicted 3 million touted by most. It is becoming clear that the private sector is reaching the end of its job reduction phase and the question mark now remains more on the public sector – however job reductions here are not expected until well after next year’s election, at a time when the private sector economy is likely to be even stronger and this potential increase in unemployment could well be offset by private sector hiring.
Rental market
“There are likely to be some winners in the rental market next year, especially in city centres which may be a surprise to some who still believe the ‘over-supplied city centres’ myth.
There is substantial undersupply of quality accommodation in the key city centres such as Manchester and Birmingham and this could well drive rental prices up by around ten per cent next year as any remaining stock is soaked up. These rent increases, which we expect to continue in the face of limited supply, will help insulate landlords from the forecast rises in interest rates over the coming years.”
