ASSETZ Outlook for the UK property market in 2008

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4th December 2007

Stuart Law, Chief Executive of Assetz, offers his outlook for the UK property market in 2008:

Average house price growth in 2008: 5%
Interest rates will fall to 5% by December 2008
Rents will rise 10% in 2008

While we are currently experiencing a lot of negative sentiment in the property market, this is actually no reason to set the alarm bells ringing.  If people look at the fundamentals it is actually very hard to find out what all the fuss is about.

Despite a recent slowing in the rate of house price growth across the market, the average figures reported by the major indices show that house prices have continued to grow at a healthy rate over the last two or three months.

I would expect average house price growth across the indices included in our monthly House Price Watch (HPW)* to be 5% in 2008. This will result from a number of factors:

Immigration is still continuing unabated
 Sellers are retreating faster than buyers, keeping the level of demand above that of supply
Government policy on the number of new homes being built shows little sign of being implemented and local planners will be reluctant to increase any planning permissions, not wanting to damage their chances of re-election
The recently reported ‘mothballing’ of schemes (holding developments until investor demand increases) by developers in city centres is actually likely to reduce supply rather than increase it over the next two or three years, as the credit crunch reduces finance available to developers and the number of buyers begins to slow

Interest rates

As a result of sustained low inflation and economic pressures, the Bank of England will have to keep interest rates at a neutral rate of around 5% in 2008. I would anticipate the first drop of 0.25% before Christmas or very shortly afterwards, followed by two further 0.25% falls in early 2008, finishing on a rate of 5% by December 2008.

Sub-prime
Sub-prime lending will remain extremely difficult in 2008, with poor credit mortgage applicants struggling to achieve any mortgage offers, and those who do secure an offer receiving interest rate quotes that are substantially above those of early 2007.

Buy-to-let
Buy-to-let lending will recover very strongly as underwriters realise the quality of security is significantly better than almost any other market sector. Already buy to let mortgages are now 0.3% cheaper than homebuyer mortgages due to the perceived better quality of borrower. With interest rates predicted to fall imminently, and rents rising, both new and established investors will soon reap the rewards of higher rental yields with positive cash flow.

Rents have risen by as much as 10% in many regions (and higher in London) over the last year, and I forecast a further 10% rise in 2008. This will make almost all current property investments cash positive, even if an investor has been subsidising their mortgages in the short-term.

 
-ENDS-

 

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Stuart Law

Stuart Law, CEO of Assetz Plc, is an experienced & active investor in property, whose views are often sought by the media. Stuart Law's Property Investment Blog