The year 2015 started with a big bang for the property market in the UK. Though the pace slowed down a bit when interim budget provisions presented in the parliament, it again took momentum subsequently. Particularly last two months were consecutively good. Not only the sale figures increased, but there was also a good thrust to the average price of properties. Experts say that it is certainly a good thing from the economic perspective. However, the number of sellers has dropped considerably adding further to the shortage of homes. Even then, why are experts so happy about the overall situation? The reason is simple. Since the YOY prices have gone up more than 5%, market turnover is good even if there are fewer people actually buying or selling properties.
What is the region wise trend?
Undoubtedly, there are variations region wise. For example, West Midlands showed 3 percent increase whereas East Midlands showed more than 7 percent increase. However, everywhere there is a positive trend. South West was up by 3 percent and South East with a rate of 6 percent. High profile regions like Greater London had the rise of 8 percent that is phenomenal considering the fact that it is the most premium location.
Statistics reveals that even regions like East Midlands, Humber and Yorkshire or the North West region also showed a positive growth after the initial stumbling. If we look at the YOY figures of these regions, then there is an increase of 4 percent, 2 percent and 3 percent respectively.
In spite of a 10 percent drop in the number of sellers as compared to last year, property dealers get more than 20 percent increase in the enquiries. Particularly, small homes are not available adequately, and the demand exceeds the supply. Big and exclusive properties are available in ample number, but the buyers are not there. Change in the mortgage rules and property tax slab made it tough.
Some experts feel that the drop in the demand for new homes could be a seasonal effect, and the situation will increase after summers. As the government announces increase in the residential planning permissions, supply will surely an increase after the implementation.
Property type wise analysis
National level property wise analysis throws light on some strange facts. The largest gap in the demand versus supply can be seen in smaller homes (one or two bedrooms). Also, there are highest numbers of enquiries in this segment. Quite obviously, affordability is the driving force. Though the biggest mismatch is in the first time buyers, buy to let investors or downsizers also show a wide gap between the demand and supply of one-bedroom or two-bedroom homes. There is another interpretation of it. The large gap at lower ladder denotes that there are several people want to upgrade desperately, but unable to do it because of high property prices. Even if builders have large homes, affordability is a big issue. The properties are out of reach of the aspirants forcing them to downsize their purchase.
Alterations and extensions have also contributed significantly to the success
Astonishingly, the boost in the market was not only from the new homes but alterations and extensions of the existing properties. Statistically, more than 7 Billion Pounds of value was added by existing homeowners. The amount is huge from any parameter. According to figures, more than 200 thousand owners either made alterations or added room to their existing properties. In general, it takes around 10 to 15 percent of the value to modify a property. Hence, the contribution is amazing.
Many people find it difficult to understand what factors motivate people to spend so much on alteration or extension? The rationale is quite simple. A majority of people do not afford to change their home due to several reasons. In this scenario, they prefer spending money on the existing property.
Moreover, moving one step ahead by occupying better property has become quite difficult in the current economic scenario. Also, mortgage finance becomes further tough. These two factors force people extending their existing properties, instead of going for a new one. Recent changes in the mortgage market review process and the increase in the stamp duty for costly properties brought a great thrust to home improvement market. Astonishingly, the trend is similar in high-value properties also. It means that even wealthy people also find alterations or extensions lucrative as compared to buying new ones. They have another reason for spending on alterations. As new facilities get added to it, the value of property greatly increases. The price hike is quite higher than the money spent on renovation.
What should be the role of the government in this scenario?
Well, it is certainly a big challenge in front of the government to make sure that affordable properties are available to the buyers. Things like the price of land and funding for the construction sector need to be regulated. If there is an overall stability in the market, then the situation will improve further. When the figures indicate that people want to upgrade but unable to do so because of high prices, the government has to make the things favorable. Investing money in homes should be lucrative and profitable.
There is a greater dilemma for people who want to upgrade by selling an existing property. Since the mortgage rules have become tough, and the prices of bigger properties reach sky-high, they can’t take a risk of selling their current home. Hence, there is a delay in purchasing a new property. If the government is keen for development in the real-estate segment, then the efforts should be reflected in the policies. Otherwise, people will not be able to avail the real benefits of the same. Making right property affordable to the right buyer will bring further revenues.
Surely, the government will take corrective actions to leverage the momentum in the property market. It is the need of the day to regulate and correct factors that are a little bit shaky.