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49: Risks to UK property prices - analysis



For the benefit of all visitors, we enclose our latest risk analysis for UK property investment. The analysis presents the likelihood that capital values will rise (green) or fall (red) versus the importance/impact of the risk. The risk in the top right quadrant are the ones with highest importance and likelihood. Therefore these are the risks which we should be most conscious of, with regard to property capital value fluctuations. What comes out of the analysis are three key risks of high likelihood to occur that can drive prices higher, and three key risks of high likelihood to occur that can drive prices lower.


Risk to higher prices (opportunities to realise value - green)

  1. Population increase (in south of UK)
  2. Lack of building and land
  3. Rising employment


Risks to lower prices (threats to lower wealth and negative equity - red)

  1. Rise in interest rates
  2. Increase in taxes
  3. Oil/gas price causes inflation (>3%)































We hope this analysis is helpful in pointing you in the right direction with regard to monitoring the economic environment and indicators for these key risks.


It should be pointed out this analysis is judgemental and is the considered view of It attempts to summarise the key risk areas to help focus investors on the key indicators to monitor.


Key Conclusions


Impact on UK Outlook

With affordability stretched, taxes increasing and the economy growing at less than 2%, its likely the risk on the upside and downside are fairly finely balanced. Our best estimate looking at all the sosio-economic data in early December 2005 is that we should expect property price increases to stagnate in December, then rise by a range 0.1-1% per month until June 2006 then flatten and stagnate again. Price increases in London and proximal areas in the SE are likely to be the strongest. Interest rates will likely stay the same at 4.5% for the next 4 months.



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