Housing Market Forecasts 2015 - Winter 2014/15 www.hamptons.co.uk
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Housing Market Forecasts 2015 Winter 2014/15 www.hamptons.co.uk Beyond your expectations
Housing Market Forecasts 2015 Winter 2014/15 Housing Market Forecasts 2015
Hamptons International House Price Forecasts
The Outlook for the Economy
and Housing Market
England & Wales North East
A sound recovery, but not without risks.
2014 8.6% 2014 5.4%
2015 4.0% 2015 2.5%
2016 4.5% 2016 3.5%
“It’s the economy, Stupid”. The key quote of we expect conditions to improve in 2016 as
Bill Clinton’s 1992 Presidential campaign is economic recovery becomes more established.
North West Yorkshire & Humber just as relevant to the UK housing market now However the availability of credit is a crucial
2014 5.3% 2014 5.3%
as it was in the US back then. The economy
is picking up strongly, with annual growth in
factor for performance. While the prospect of
interest rates remaining low until at least the
Stamp Duty
2015 4.0% 2015 3.5%
2014 at three per cent. But sentiment about autumn of 2015 has pulled mortgage rates down, reforms will boost
the continued pace of recovery is weakening the Bank of England Credit Conditions Survey
2016 4.5% 2016 4.0%
as global economic conditions, especially in suggests that lenders remain cautious about both activity
Europe, falter once again. the future and that will limit the pace of price
and prices in the
Wales East growth - just as the regulator intended.
On the upside, wage growth should improve
in the next two years, which will help ability This background inevitably affects activity,
short term, as
2014 10.0%
2014 2.9%
2015 2.5% 2015 4.0%
to buy. The Bank of England expects pay to although we do expect transaction growth in the majority of
grow in real terms in both 2015 and 2016 as 2015 and the risks are to the upside as a result
2016 3.0% 2016 4.5% inflation stays below its two per cent target. of the SDLT reform. 2016 should see some buyers pay less
That’s partly because the strength of Sterling
keeps imports cheap, but also because of the
further growth as economic recovery spreads.
With higher levels of stock for sale and slower
tax than before
West Midlands Greater London fall in global commodity prices such as oil and price growth there are clearly prospects for the reforms.
food. Rising wages and lower inflation means higher activity.
2014 4.5% 2014 16.1%
households will feel richer and that will boost
2015 3.5% 2015 1.5% the economy and the housing market. There are Much of the focus of recovery so far has been
2016 4.0% some offsetting factors though. The poor state on first time buyers, especially given Help to Buy,
2016 4.0%
of public finances means that austerity isn’t but we also expect a pick-up in movers in 2015.
This is partly due to the SDLT reforms but also Hamptons International
going away. That is a particular threat in the
South West South East UK regions most reliant on the public sector. In because we expect greater use of transitional
Housing Market Forecasts
addition weaker growth in Europe means that arrangements by lenders to offer buyers ‘softer’
2014 6.8% 2014 11.0% affordability tests who are managing payments
there will be less demand for our exports and
2015 4.0% 2015 4.0% that threatens the pace of economic recovery. now but may not pass new, more stringent,
affordability tests to move. That is driven by Annual Transactions
2016 4.5% 2016 4.5%
In the housing market sentiment shifted falling arrears and possessions and the Bank of House
sharply in 2014, particularly in London, due to England’s research that reveals that borrowers Price Growth
deteriorating affordability, new mortgage market are better able to withstand a two per cent 2013 3.6% 790,200
regulation and growing talk of ‘concerns’ about increase in rates than expected.
the housing market from the Bank of England.
Overall we expect house price and transaction 2014 8.6% 880,800
On top of this, worries that the UK’s recovery
may be vulnerable, have moderated expectations growth to be fairly modest for the next two
of how much further prices can rise. Most of the years, but there are both up and downside risks. 2015 4.0% 908,500
concern is focused on London but the change in On the upside a SDLT reforms and a stronger
mood is affecting the rest of the country too. economic recovery would boost confidence, 2016 4.5% 975,000
but on the downside, lower expectations
Prime Central London Central London Uncertainty about the election, mansion tax and about future price growth, low wage growth
Forecasts based on HM Land Registry
figures for England and Wales
the pace of economic recovery will all dampen and continued caution on the part of lenders
2014 13.5% 2014 19.9% the prospects for the housing market in 2015, but could lead to a weaker outturn. In addition,
2015 0.5% 2015 2.0% some of this will be neutralised at the beginning uncertainties around the general election and
2016 3.5% 2016 3.5% of the year as the reform of SDLT provides an housing market policies, including mansion tax,
incentive to move sooner, before price growth may continue to unsettle housing markets.
erodes the benefit of the tax cut. Further ahead
1—2 hamptons.co.uk/researchHousing Market Forecasts 2015 Winter 2014/15 Housing Market Forecasts 2015
Regional Prospects Hamptons International Regional House Price Forecasts
As usual the national picture disguises some very
2013 2014 2015 2016
A boon for all
England & Wales 3.6% 8.6% 4.0% 4.5%
different situations across the regions, both in terms North East -1.5% 5.4% 2.5% 3.5%
sectors of the
of the economy and the housing market. North West 0.5% 5.3% 4.0% 4.5% markets is the
Yorks & Humber 0.7% 5.3% 3.5% 4.0% expectation that
East Midlands 2.8% 6.2% 3.5% 4.0% interest rates
London
London’s housing market recovery has been before other parts of the country and the ratio of
In and Out of the Capital West Midlands 2.7% 4.5% 3.5% 4.0%
will remain
Wales 1.5% 2.9% 2.5% 3.0%
largely separate from the rest of the UK. prices in London to the UK narrows. If the same
East 4.0% 10.0% 4.0% 4.5%
lower for longer.
Affordability has deteriorated faster and the pattern is repeated, as we think it will be given
effect of new mortgage market regulations has the relative state of affordability, although prices London* 9.7% 16.1% 1.5% 4.0%
*London is defined as the whole of
bitten hardest in the capital. As a result there is will continue to grow in London over 2015 and Greater London
South East 4.2% 11.0% 4.0% 4.5%
still room for faster recovery in prices and activity
outside the capital, notwithstanding the fact that
2016, they will do so at a slower rate than most
other parts of England and Wales.
£17 Billion South West 2.8% 6.8% 4.0% 4.5%
**Prime Central London is defined as the
London boroughs of Kensington & Chelsea
sentiment is weaker across the country. The amount Londoners and Westminster
Prime Central London** 10.0% 13.5% 0.5% 3.5% ***Central London is defined as the
Prime Central London (PCL) have spent on homes London boroughs of Camden, Hackney,
Central London*** 12.6% 19.9% 2.0% 3.5% Hammersmith & Fulham, Islington,
Even though London’s economy is likely to be The Prime Central London market is the most outside the capital in Lambeth, Southwark, Tower Hamlets
stronger, credit conditions will make it more independent of the London markets as it is the last 12 months. (Canary Wharf) and Wandsworth.
difficult for pent up demand to be realised. This least affected by the availability of mainstream
More than the total value
will change as economic conditions improve, but credit. The value of property in this sector that are politically attractive in a general election year are likely to crisis peak so affordability is better, but wage growth has been very
there is more of a cause for a pause in London means demand can only come from a limited
of homes in Oxford. play a part in the timing of activity but is unlikely to lead to flight weak. Stamp Duty reforms in the North and Midlands make a much
than elsewhere. We shouldn’t be surprised by pool of wealthy buyers, many of whom are given that the prospects for the UK are still strong. smaller difference than elsewhere. Lower house prices mean that 40
some price falls, particularly in the early and from overseas. But that does not mean that it to 55 per cent will see no difference in tax under the new regime
mid-parts of 2015, but economic prospects are is unaffected by market conditions elsewhere, Central London
relatively strong in the capital and the outlook particularly market expectations about future High prices and a lack of available supply in PCL displaced demand The South East and West (Country) Markets
for wage growth is better than the rest of the capital growth. But London does still punch to Central London helping to fuel prices. But demand also comes The price gap that has opened up between London and the Country
country too. The decision by some sellers to take above its weight as a global city for investment from the mainstream population, albeit relatively wealthy, but has already led to increased migration away from the capital into
this opportunity to move out to the country has which means that interest will not dry up. likely to have need of some mortgage finance. As a result tighter commutable areas further out, helping to support prices in these
led to an increase in supply but a feeling that affordability regulations are beginning to bite as house prices have areas. The average price of a property in London is twice that in the
prices have risen too quickly means there hasn’t Uncertainty is a feature that will affect the whole grown. In addition a change in future house price growth expectations South East and two and a half times the average in the South West.
been the corresponding increase in demand. of the market, but in the PCL market where and a desire to crystallise capital growth has led to a large increase in
Stocks are up by 16 per cent in London, but many have the choice about where to put their 35,000 Homes stocks for sale, but a fall in the level of demand. Stamp Duty reforms The South East still has a bit more to go given relative affordability
applications are down by 30 per cent, which funds, there may be a greater effect. Stamp Duty will generally mean a higher tax bill for properties over £1 million. We and the increase in prospects due to the proximity to London. The
The number of homes
itself dampens house price growth. reforms mean that this sector of the market is expect a significant slowing in price growth in central London. But the East is similar. Both areas will continue to see some migration
worse off. A £5m home would face an additional
bought by Londoners strength of the capital’s economy will be a positive factor preventing demand as people move out of the centre and cash in – although
The experience of previous housing market tax bill of £164,000 under the new regime. The outside the capital so far any significant year-on-year falls. this will wane. However the East is vulnerable – it is traditionally
cycles is that price growth in London slows potential for a mansion tax or other measures this year. volatile and while economic prospects should be good here, there
North & Midlands are risks – especially beyond the safety of well off Cambridge.
London Price Performace Relative to the Rest of the UK
In the North the recovery in housing markets has been constrained Stamp Duty changes will mean most buyers are better off under
2.4 and prices are still below their pre-crisis peaks. As a result the new system. Indeed even in the highest priced region of the
2.2 affordability has not rapidly deteriorated. However, this is South East, only two per cent of buyers would be worse off under
London to UK Price Ratio
Moving to the next part of cycle where
2.0
the rest of the country catches up counterbalanced by weaker economic prospects in the regions. The the reformed stamp duty system.
North East already has the highest unemployment rate in the UK
1.8
and is further haunted by the spectre of public sector job cuts. The
1.6
North West has a better outlook given the strength of Manchester,
1.4 but growth is still relatively modest. The East and West Midlands
1.2
1
Cycle of London outperforming the rest of the UK, and then
underperforming as the house price gap closes.
14,700 Homes are in a similar position to the North West. Local economic
conditions are getting better and this should continue as the UK as
The number of homes a whole gets back on its feet. But these regions are more vulnerable
Q4 1973
Q1 1975
Q2 1976
Q3 1977
Q4 1978
Q1 1980
Q2 1981
Q3 1982
Q4 1983
Q1 1985
Q2 1986
Q3 1987
Q4 1988
Q1 1990
Q2 1991
Q3 1992
Q4 1993
Q1 1995
Q2 1996
Q3 1997
Q4 1998
Q1 2000
Q2 2001
Q3 2002
Q4 2003
Q1 2005
Q2 2006
Q3 2007
Q4 2008
Q1 2010
Q2 2011
Q3 2012
Q4 2013
Q2 2014
bought by movers from than the South to economic volatility. Prices are still below the pre-
the rest of the country in
Source: Nationwide / Hamptons International London in last 12 months.
3—4 hamptons.co.uk/researchHousing Market Forecasts 2015 Winter 2014/15 Housing Market Forecasts 2015
Stamp Duty Reform Rental Forecasts
The autumn statement brought an overhaul of the Stamp Duty Land Tax. Conditions in the rental market saw the first
significant change this year since 2012.
The Chancellor has abolished the old slab pays Stamp Duty on £75,000 at 2% rather than New Stamp Duty Rates
structure of Stamp Duty. This is good news on the whole £200,000 under the old regime.
for the operation and efficiency of the overall The new rates mean that buying a home up to Price Band Rate
housing market. It’s the number of transactions £937,500 or between £1 million and £1.12 million The fine balance between supply and demand likely to result in more investment in buy-to-let
£0 - £125K 0% that has kept the growth of rents in line with property, which should lead to increases in
that are the real signal of the health of the will incur a smaller tax bill meaning that 72 per
housing market rather than the pace of growth cent of buyers will pay less Stamp Duty and two £125K - £250K 2% inflation over the last couple of years shifted the total available stock. As fears around the
of house prices. This move should overall help per cent more, with the rest seeing no difference. £250K - £925K 5%
in 2014. Demand increased and available stock
fell putting upward pressure on rents. At the last
election fade, and the housing market recovery
continues it is likely expectations of future price
Rental growth is
to increase transaction activity, allow people
to move more easily and with a lower financial Overall it’s a good move to get rid of the slab structure, £925K - £1.5m 10% count the number of new applicants registering growth will increase too, encouraging landlords likely to outstrip
although abolishing Stamp Duty altogether would
burden. This in turn will help the labour market
and the wider economy too. be even more efficient. Transactions are the most
£1.5m + 12%
to rent was 25 per cent up compared to the
previous year, and stock levels down 15 per cent.
to purchase more.
house price
These rates are only paid on the value of the
important indicator of a healthy housing market and
ease of moving is also essential for labour market As expectations of future house price growth
London and the South have always been a
magnet for younger people, starting their growth in 2015
property within the threshold ranges so a efficiency so reducing the financial hurdles is a very How Does the New System
Measure?
have declined more landlords are choosing
to sell, reducing the available stock, which is
careers. The stronger economic recovery in
the South means that this has continued to
for the first time
property valued at £200,000 for example only welcome move.
ultimately pushing up rents. Forty per cent more generate demand in the rental market. Which is since 2012
landlords have ended tenancies in order to sell why much of the pressure in the rental market
Stamp Duty - Comparing New and Old Source: Hamptons International their property so far this year compared to 2013. is surfacing in London and the South East. We
£180,000 Meaning nearly 1 in 10 tenancies ending in 2014 expect to see higher rental inflation in these
£160,000 resulted in the landlord selling. areas than the rest of the country, in both 2015
£140,000
72% 26% 2%
and 2016, along with key urban centres such Price Growth Since Jan 2013
Stamp Duty Payable
£120,000 Rising prices and increased caution about how as Manchester, Brighton and Liverpool also
Unaffected
Pay More
Pay Less much more they can rise has seen the flow of
£100,000
outperforming.
£80,000 tenants into ownership slow too. This combined
£60,000 with growing demand in employment centres While conditions have changed in much of the
£40,000
as the economy recovers has led to growth in rental market growth in the prime areas of Central
£20,000
the pool of tenants actively looking for homes to London such as Mayfair, Knightsbridge, Chelsea
£0
rent. The shift in the market means that in 2015 and Kensington looks set to remain subdued. High
House New All
£100,000
£150,000
£200,000
£250,000
£300,000
£350,000
£400,000
£450,000
£500,000
£550,000
£600,000
£650,000
£700,000
£750,000
£800,000
£850,000
£900,000
£950,000
£1,000,000
£1,050,000
£1,100,000
£1,150,000
£1,200,000
£1,250,000
£1,300,000
£1,350,000
£1,400,000
£1,450,000
£1,500,000
£1,550,000
£1,600,000
£1,650,000
£1,700,000
£1,750,000
£1,800,000
£1,850,000
£1,900,000
£1,950,000
£2,000,000
the growth in rental prices for new lets is likely existing rents are limiting potential demand and Prices Lets Rents
to exceed wage growth. relatively high stock levels mean rents are likely to
New Stamp Duty Threshold Old Stamp Duty Threshold
remain flat. We don’t expect to see any significant
2016 should see pressures on stock ease. growth in rental values in Prime Central London
Changes to the rules around withdrawals in the next two years.
Total Rental Market Costs Index of New Lets Compared
to Total Rent
from pensions taking effect in April 2015 are
Hamptons International Annual Rental Price Growth Forecasts Source: Hamptons International
1.12
New Lets
1.10 Total Rent
Our rental forecasts are based on the change over time, particularly as it isn’t as affected by England & Wales Greater London
1.08
in rents of new lets, measuring the change seasonality as new lets.
1.06
in costs for tenants who are moving and
2014 2015 2016 2014 2015 2016
Index(1=Jan13)
new entrants to the market. An alternative The impact of inflation from new lets takes quite 1.04
measure of rent growth, included in the official some time to feed into total rental costs and
generally only some of that inflation will feed
1.02 4.0% 4.5% 4.0% 6.0% 6.5% 5.0%
inflation measure, is the change in the total
into the whole market. For example the rental 1.0
cost of renting. This accounts for both those
moving, renewing and those part way through growth for all tenants this year has yet to reflect 0.98
their tenancies. This measure is useful for the changing market conditions for new lets. 0.96 Central London South of England
understanding affordability and is a more As we progress into 2015 we expect these to be
0.94
stable option for modelling income changes reflected more in the total costs.
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Sep 14
2014 2015 2016 2014 2015 2016
Source: Countrywide 5.5% 6.8% 5.0% 4.5% 5.0% 4.0%
5—6 hamptons.co.uk/researchDrawing on over 140 years of experience, Our services include: www.hamptons.co.uk/research
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©Hamptons International 2014. This report was published for the purpose of general
information and Hamptons International accepts no responsibility for any loss or
damage that results from the use of content contained therein, including any errors
or negligence from third party information providers. It is your sole responsibility to
independently check and verify the facts contained within this report. All opinions and
forecasts within this report do not in any way represent investment or other advice.
Reproduction of this report in whole or in part is not allowed without the prior written
consent of Hamptons International.
Johnny Morris Fionnuala Earley
Head of Research Residential Research Director
morrisj@hamptons-int.com earleyf@hamptons-int.com
+44 (0)207 758 8438 +44 (0)207 758 8465
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