by Gauk
Thu, Oct 8, 2020 11:54 PM

When looking at how we predict house price trends, there are 3 key influences to review; those that will have the major influence on house prices in the UK.

1.  Supply  of  finance/credit  and  at  what  interest  rates – easily available credit leads to prices rising – and is more likely to lead to an unrealistic growth in prices. When credit is less easily available then prices can stay flat or even go down.

2. Employment – clearly if people are not in employment it is much harder for them to get a mortgage, and if people are concerned about their employment prospects they are less likely to commit to a move, or to take on a bigger mortgage – which can lead to prices falling or staying flat. A buoyant employment market can lead to price rises.

3. Supply and demand of new properties – clearly if the supply outweighs demand, this can mean the average price drops. Vice versa if supply is lower than demand this puts upward pressure on prices. So the amount of new properties coming on the market this year can make a significant difference on the values of property.

Let ’s look at each of these as we predict average house prices.

The Supply of Finance/Credit and Borrowing Rates

Last year it was difficult to see the silver lining in the mortgage market for many people, as the media continued to enjoy the putdowns wherever possible. For me, I won’t sit here and write this saying I knew it would be fine, but I kept positive and understood that only the most savvy investors would keep buying property and find a way to negotiate the mortgage minefield.

The Highlights

The return of the 80% mortgage – Highlighting lender confidence in the buy to let market and an underlying confidence that whilst property prices may be fluctuating, generally they do not expect any significant falls in value going forward.

The introduction of new lenders – Aldermore, Paragon, Precise, Kensington. If you told me at the beginning of the year that we would see the introduction/return of four new lenders, I would have told you to stop dreaming. Whilst their criteria and products are based around a cautious lender attitude, it ’s a great sign for the buy to let market and I expect significant product improvements/ relaxed criteria going forward as the competition increases. A massive increase in available mortgage products – I can say that the biggest difference I have seen that my customers may not have noticed, is the availability of mortgage products this year. In fact, according to Mortgage Brain, they have doubled. The increase in mortgage products reveals that the increase of mortgage funding is going up. Borrowing from the BOE has been put aside in favour of banks offering customers competitive interest rates and offsetting this against super high arrangement fees for mortgages. Whilst we complain about these arrangement fees, at present they are very important for bank funding. If a deal works, then most of us will be prepared to surrender to these high fees for a decent property on a low interest rate.


So to summarise, we have seen a surprisingly positive element of lending in the buy to let market more recently. There is no better sign to indicate a growing property market (however slow or month by month variant) than the sign of lenders re-entering or newly entering the mortgage market and seeing an increase in the number of mortgage products available. For those of you who took advantage of deal last year, you can be sure you have made a safe investment and you will continue to benefit from high cash flow from your low rates mortgages.

Tips Going Forward

I never like to do this but I will put my neck on the line here, I honestly think that rates will stay low for the rest of year. There are various pressures to increase rates (such as inflation) but with recent news on the state of the US economy and Euro Zone problems, I doubt the MPC (Monetary Policy Committee) will want to expose our economy to these dangers any time soon.


What are the predictions for employment? As mentioned it is clear that job security and wage inflation can have an impact on house prices and values.

The latest figures are relatively good – but by no means strong.

The employment rate for those aged from 16 to 64 was 70.8 per cent. The number of people in employment aged 16 and over increased by 167,000 to reach 29.19 million. Employment is up 286,000 but is 210,000 lower than two years previously. The quarterly increase in total employment was mainly driven by self- employment, which increased by 112,000 to reach a record high of 4.03 million, and by part-time employees, which increased by 94,000 to reach 6.76 million. The number of full-time employees fell by 62,000 to reach 18.17 million. The number of employees and self-employed people who were working part-time because they could not find a full-time job increased by 67,000, to reach a record high of 1.15 million. Comparable records for these employment series began in 1992.

The unemployment rate was 7.7 per cent. The total number of unemployed people fell by 9,000 over the quarter to reach 2.45 million, although the number of people unemployed for up to six months increased by 21,000 to reach 1.18 million. Male unemployment fell by 40,000 to reach 1.43 million but the number of unemployed women increased by 31,000 to reach 1.02 million, the highest figure since 1988.

The earnings annual growth rate for total pay (including bonuses) was 2.0 per cent, up from 1.7 per cent. The earnings annual growth rate for regular pay (excluding bonuses) was 2.2 per cent, up from 2.0 per cent. So overall, considering the credit crunch, employment figures have stayed pretty resilient – however with public sector job cuts to come, many expect another 200,000 net jobs to go over the next 18 months. It must be pointed out though that previously several commentators expected similar falls, which we did not see.

However, it is fair to say that with pay inflation weak and public sector job cuts to come, there is unlikely to be upward pressure on house prices due to increasing salaries and increasing numbers of jobs – with the chance that with job cuts there could well be some downward pressure on prices.

Supply & Demand Of New Properties

The UK for years has struggled to build the target number of properties required each year. As a small island, and a growing population, the UK needs to build approximately 250,000 new houses each year just to keep up with demand from a growing population.

This has been made significantly worse by the credit crunch and COVID – as both end buyers and developers have been unable to make the figures work.

Developers are sitting on land which has dropped in value by up to 60-70%, and building on this will struggle to give end values that are supported by the banks and buy to let lenders – so they have no alternative but to sit on this land until values rise – and this could take 3-4 years.

So in the meantime houses and apartments are not built. The change in government, and change in planning regulations and targets set by local government are also making a significant change to the number of houses being built.

Some current statistics show this:

  • Local authorities have ditched plans for 160,000 homes since the coalition government came to power, research has found. The latest figures from Tetlow King Planning, for the National Housing Federation, suggest the number could reach between 280,000 and 300,000 by this time next year.
  • Ministers have pledged to build more homes than the previous administration, but the NHF estimates 1,300 planned homes have been scrapped every day since May.

Tetlow King produced a report for the NHF the same month which said councils had scrapped plans for 84,150 homes as a direct or indirect response to the new government ’s policies. Its latest report says: ‘We are now seeing an increasing number of local authorities announcing reductions to the housing targets as each week passes. ‘Looking forward to the next 12 months, we would expect at least 280,000 to 300,000 fewer homes being planned for…This is based on the large number of authorities we still expect to reduce their housing targets.’

Since the planning changes were announced, almost 70 councils have halted progress on development plans, reduced previously planned housing numbers or delayed planning enquiries at appeal.

Federation chief executive David Orr said: ‘The government has said that its housing policy should be judged by whether or not it delivers more homes than the last administration. As things stand the new approach to housing must be judged harshly. ‘The slew of changes to the planning system has sent out a signal to local authorities that building new homes is no longer a priority – that building new homes is a nice-to-have, not a necessity.

‘But with 4.5 million people on waiting lists and 2.5 million people living in overcrowded conditions the building of new homes must be promoted as mission critical.’

Latest Predictions For UK Population

According to the government national statistics, the UK population is projected to increase by 4.3 million by 2018. This increase is equivalent to an average annual rate of growth of 0.7 per cent, or 450,000 people every year – so even keeping up with the growing population, never mind replacing existing houses, we need hundreds of thousands of houses each year!

If past trends continue, the population will continue to grow, reaching 71.6 million by 2033. This is due to natural increase (more births than deaths) and because it is assumed there will be more immigrants than emigrants (a net inward flow of migrants). In common with other European countries, the UK has an ageing population. The proportion of people aged 65 and over is projected to increase from 16 per cent in 2008 to 23 per cent by 2033. This is an inevitable consequence of the age structure of the population alive today, in particular the ageing of the large numbers of people born after the Second World War and during the 1960s baby boom.

Projections of households for England published by the Office of the Deputy Prime Minister (ODPM) on 14 March 2006 estimate that 4.8 million new households will form between 2003 and 2026, an annual growth of 209,000, down to the reasons highlighted above, as well as more single households expected – see below.

  • Immigration  32%
  • More adults 28%
  • More single households 21%
  • More pensioners 19%

So all 3 indicators here – planning changes by the current government, lack of incentive for developers to profitability build new houses currently, and a population growing by almost half a million each year – means demand is going to continue to exceed supply suggesting upward pressure on prices, in particular in larger cities and towns, with affordable prices ie prices with low ratio to current salaries.


So we have an interesting mix of potentially positive and negative news here.

The major positives are:

  • The mortgage market is continuing to develop.
  • The supply of new housing is still a long way from coping with the demand of housing from an increasing population, with more single households.
  • The major negative is the current uncertainty in public sector jobs, with cuts due to take effect. So how does this leave things overall?

Well with house prices overall staying fairly consistent, I think the various upward and downward pressures highlighted above will keep things pretty flat again for the rest of the year. It would seem likely that regions that see the least amount of public sector job cuts, and the most private sector investment will likely perform best.

Buying properties that fit the first time buyer, single person household, and buy to let market will likely perform well. One of the big positives to come out of the changes in the finance markets, and the increasing number of single person households is that the rental market has continued to go from strength to strength.

Rental Demand Continues To Go From Strength To Strength

Demand for properties to rent increased at the fastest pace, while supply of new property to the lettings market fell for the fifth consecutive quarter, resulting in soaring rental growth.

The Royal Institution of Chartered Surveyor s said 33% more surveyors reported a rise in rental demand than a fall, the fastest increase for over two years, with houses proving slightly more popular than flats.

The pick-up in demand for homes to let, coupled with the weaker supply coming onto the market, forced the rate of rental growth to its highest, with 39% more surveyors reporting seeing an increase in rents over the past three months, RICS said.

RICS spokesperson Jeremy Leaf said: “The lettings sector has become increasingly strong over the past nine months, in contrast to the housing market which continues to slow. Many have turned to renting because they fear further price reductions in the housing market, or because they cannot obtain the necessary finance to buy.

“As a result, rents continue to rise with supply failing to keep up with demand. However, there are increasing indications that more landlords are recognising these benefits and looking to add to their portfolios – especially as there has been a rise in the number of providers willing to offer investment mortgages in recent months.”

The RICS findings echoed news released by the Spicerhaart Residential Letting s (SRL) group, which said the ongoing boom had led to its strongest ever rental market in recent months. SRL lettings managing director Andrew Berry said: “It is unprecedented. Across all our divisions we have seen growing demand for a broad range of rental properties, from one-bedroom flats to family homes. Rents are soaring.”

“Tenants will have to fight harder to ensure they secure a property,” Berry added. “In this market, the best piece of advice for anyone considering either renting or letting out a property is to research every aspect.”

All of this is great news for buy to let landlords!


So overall who is this good news for?

Well for those with good credit history, that can get approved for mortgages, and have funds in place for buying costs and deposits I firmly believe the coming period will be the best time in the last 10 years to be buying properties for buy to let, as all the evidence indicates some of the best rental returns for years, alongside some pretty attractive borrowing rates.

By putting in aggressive bids, you can get properties for 2005 values, and rents have increased by around 15-20% since then! So yields are excellent and positive cashflow is very healthy. For those looking to buy to sell as an investment choice, it still is difficult, but again if can get very strong discounts, and buy in a desirable area, then is still possible to buy and sell.

Recent and current examples of deals we have secured for clients include:

  • 3 bed family houses at 35% below current valuations
  • Tenanted property in Cumbria giving 12% rental returns
  • New build family 4 bed houses at under £100,000

Alan Forsyth

published by Gauk



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