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556: Trends in UK property prices

12-20-2015 team

Worsening Housing Crisis: The housing crisis worsens by the day. The seeds were sown back in the year 2000 when the flood gates were opened to mass migration whilst the levels of building dropped markedly mainly because of the Nimby factor. Successive government have done nothing practical to alleviate the problem which has escalated as migration has increased and building levels have dropped further.

Tax To Make Matters Worse: The recent swinging increases in taxation on buy-to-let businesses will only make matter worse leading to less investment in property and building and rapidly rising rents.

No Risk No Reward: For first time buyers who deserted the market for 5 years after the housing crash of 2008 taking the low to no risk approach of renting, the tide has turned dramatically and rising house prices are making it very difficult for younger people to own property, particularly if they have no wealth parents or family to help.

Exploding Population: The population is also exploding – particularly in area which have had higher migration levels, since overseas families tend to be larger – fertility rates are higher. In London this is particularly marked of course - 50% of births are from mother of foreign origin. This trend is set to continue at an increasing rate.

House not Flats Needed: In London, the only properties  being built seem to be expensive luxury flats in central London. Families of course want houses with gardens but this aspiration is becoming almost unattainable for all but the most wealthy highest earning younger people.

Lower End Higher Returns - SE England: For property investors, the market in the lower end is tightening dramatically in London as first time buyers compete for these properties. This is likely to see the highest house price increases in the next few years – closing the gigantic differential between the prime central London apartments – for £2-3 million and the flats in the suburbs that sell for as little as £250,000. Projections from serious, objective parties predict house prices in London will almost double in the next ten years because of:

·         Rapidly rising population

·         Increasing wealthy foreign purchases – since London is a global market

·         Lack of building

·         Increasing business and employment

·         Low general inflation and borrowing rates

Oil Price Crash Helps House Prices: The oil prices continues to decline – which is fuelling house price increases since general inflation is non existent and hence interest rates cannot be increased. If anything, the Bank of England should be printing money t boost inflation – not raising rates. In such a period, house prices will rise as long as GDP growth rises, employment rises and real wage inflation is rising. We have all the ingredients in the next 12 months for further sustained house price increase. Only a major recession or massively increasing oil prices would scupper this we believe.

Rich Getting Richer From Printed Money: Despite increases in taxation, the rich seem to be getting richer and the poor staying poor with a big squeeze on the middle classes after government attacks on pensions and buy-to-let and second homes. The Bank of England strategy seems to be to print money and keep interest rates incredibly low to boost GDP and help big business and the banks, whilst savers and pensioners are destroyed and the middle classes are squeezed with higher tax. The printed money goes into property – creating what some would call “bubbles” then the Government get some of the printed money back from wealthy people through higher taxes. All the time, first time buyers find it harder to get on the housing ladder – but the government then step in to pay for 20% deposits with tax payers money to keep the property market going – because they know people that own homes vote Tory – its that simple. The big recent losers are the buy to let business owners – that have to pay taxes on loses and are forced to sell their properties because of the punitive tax changes. There no such taxes for big businesses of course – many escape by paying no tax on gigantic incomes by offshoring their HQs etc.

Poor Policies: Anyway, these very policies are making the housing crisis worse – because they will create a massive tightening of the rental market in the next few years and renters will see their rent rise sharply causing distress.

Referendum - Likely Brexit: Next summer 2016 – we are likely to see a Referendum on Europe – whether the UK should exit or not. All the trends point to an ever increasing amount of people that want to exit. We believe although David Cameron will campaign to stay in, as will Labour, the deal wont be good enough and the UK will vote to leave. This will probably create some financial uncertainties for 2017 and could even lead to higher interest rates – but its all quite uncertain what the impact would be – and its also on a knife edge how the vote will go. We also think the Scots may use an EU Exit as their excuse to ask for another Scottish referendum on full devolution – and if they have the second vote – this time we think they would win the independence vote quite easily. Hence you can see the link between the “Deal”, how good this is, then whether the UK stays in Europe and then whether Scotland gets independence.

Avoid Scotland: What this all means is – best not to invest in Scotland because there are too many uncertainties for business and oil prices have crashed – meaning independence would create a financial crisis in the country and house prices would drop sharply. Scotland has little or no growth and is likely to slip into recession in the next few months. The nationalist policies are not encouraging business to remain north of the border and oil revenues have been savagely hit, along with crashing oil industry-service employment, particularly in NE Scotland.

Best SE England: With all the uncertainties and the Tories in power – we believe its still best to invest in London and the South East – in lower prices properties where prices are likely to rise stronger in the next few years. Anywhere within an hour’s commute to London is probably best because rental and capital values will always follow the high paid jobs and strong employment and business growth.

Avoid Holiday Home - Capital Values: It’s probably best to avoid holiday areas – expensive coastal properties – since many are second homes and prices will be affected by the increase in stamp duty. Indeed, this might be the start of an ever increasing stamp duty rate for second homes as the housing crisis worsens.

Holiday Lets Prices to Strengthen: Converse to this – is that holiday rentals or holiday lets will see  big tightening of supply. With terrorist threats and planes being shot down and warmer temperatures, more UK citizen will holiday at home – and want to rent holiday homes in southern England and the National Parks. Rents are likely to shoot up – because of the stamp duty and higher council tax on second homes.  So anyone with a holiday let portfolio – it’s probably best to hang on to it – also because these are not affected by the punitive new buy-to-let tax hikes.


Below is our forecast for rising property prices Dec 2013 - we are still holding to this long term trend:



























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