UK Property Recovery Another 2 Years Away At Least

UK Property For SaleA something strange is happening in the UK property market. Walk around most new build developments and you will see them packed with buyers. If you want to invest in one, you will need to queue for over an hour in some cases just to speak to a sales rep.

‘Reserved’ and ‘Sold’ signs can be seen next to plots in the charts you see hanging on the wall of sales offices. The beige carpets of show homes are looking grubby again from the many people arriving for viewings.

This feels like the start of a property boom – except it isn’t.

I have seen many theories about what makes a property market boom and what makes a property market bust. The reality is actually quite simple – property investors and buyers need finance and they need it to be easy to obtain.

Yet the banks are still nervous, they will look at charts like the one below and think that property priced at 4 ½ times the average earnings is more of a risk than when prices were 3 times more at the start of the 2001 property boom.

 

 

 

 

 

The last boom was fuelled by easy finance gained from Self Cert and 100% mortgages. This one is different – it is an artificial boom created by government schemes that cater for one section of the market with the hope that it will kick-start a recovery.

At the moment the UK government’s flagship New Buy and other schemes are helping first-time buyers and those with around £50,000 deposits, buy or invest in new homes. The finance is there for them, however they are the minority not the majority.

Schemes allowing second home buyers to invest don’t yet exist, leaving a glut of secondary properties languishing on the market.  Finance for those who already own UK property is also still hard to come by for all but those with the best credit ratings. This makes it virtually impossible for many ‘second steppers’ to move.

So what we appear to have in the UK is a boom for new properties and a relative slump for secondary properties outside London and the South East. According to RICS the number of property sales in the UK is still only half the total seen in 2007.

The danger at the moment is that new developments are already pricing in a rise in UK property prices, opening up a large gap over those on the secondary market.

In my local area, the price of a small new 3-bedroom house costs £40,000 more than a larger secondary 3-bedroom property in the same area. If this situation plays itself out in other areas who can say that it won’t leave another generation of buyers trapped in over-priced UK property until the recovery really begins?

So as we see a seasonal surge of demand this spring from UK second home buyers who have sat on the sidelines for the past 5 years entering the market and putting their own homes up for sale, we may well see a further slump as supply outpaces demand.

This is what is known as a bottle neck. If your sink is blocked and you turn the tap on, your expect to see an excess of water until that blockage is removed.

The UK government has intervened with the right intentions, however what they may not have foreseen is that they have altered the course of the recovery and only made it easier for developers and first-time buyers.

Cue more green belt land being gobbled up when most towns in the UK have scores of empty shop units vacated by struggling retailers. One swallow doesn’t make a spring as they say, so a solution will need to be found soon to get those in negative equity and mid-way up the housing ladder moving again.

Looking at the historic figures, if we look at the last major UK recession, we see that it took the better part of seven years before a new expansion phase began and a similar length of time following the early recession of the 1980s. See the chart below based on Halifax House Price statistics:

 

 

 

 

 

It has now been five years since the biggest recession in a generation and certainly comparable to the Great Depression of the 1930s. It would be reasonable to expect that it would take at least a similar length of time as it did following the recession of the early 1990s for a new expansion phase to begin.

This means that aside from the modest 0.2 increases that have been happening outside of London, the UK will probably not see a return to the kind of growth that will turn things around for another two years at least or possibly longer.

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Here is a hands-free UK property investment that does stack up click for more information.

When do you expect to see a recovery in the UK? Please leave your comments below:

Kind Regards

Brett Tudor
Property Expert

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