UK Residential Quarterly Summer 2014 Research
Market View Economy: UK economy continues to improve despite geopolitical risks The improvement in sentiment over the global economy at the beginning of 2014 is now being met with political uncertainty. Damage done to emerging markets continues to present significant risk, but it appears problems with major economies’ monetary policies are easing. The IMF still expects the US to drive this return to stable global economic growth through 2014. Yet, the FED has continued to hold off on any tightening of monetary policy due to uncertainty over the country’s economic performance. However, it should be noted that in the most recent FED monetary policy report it had been suggested that the continual improvement in labour market conditions could indeed lead to interest rates rising earlier than expected. In Europe, geopolitical risks still remains significant. There is still a risk of spill over from the ongoing conflict between Russia and Ukraine affecting trade relations between the EU monetary bloc and Russia. Additionally, the election of Jean-Claude Juncker as the president of the European Commission is set to bring to the table policies to increase market integration, such as the new ‘capital markets union’ initiative which will aim to ease access to finance for companies and infrastructure projects. However, it is yet to be seen what effect this will have on economic and political tensions within Europe. National property market The housing market is continuing to reap the benefits of both stable credit conditions, and strong performance in UK employment and output. The Nationwide House Price Index rose by 12.9% year-on-year to Q2 2014, up from 9.2% in the first quarter of this year.
In June, the HM Treasury consensus GDP forecast showed projections have consistently risen, most recently to 3.0% for 2014. Projections for 2015 have also been revised upwards and now stand at 2.6%.
CPI grew by 1.9% in the year to June and is giving fuel to the argument for higher interest rates.
Figure 1. UK House Price Growth
Nominal Year on Year Growth
40.00%
The latest release of UK economy data shows that there has been a fall in the national unemployment rate to 6.5%, with the proportion of people aged 16 to 64 in work reaching its highest rate since 2004 at 73.1%.
30.00% 20.00% 10.00% 0.00% -10.00% -20.00%
Prime Central London Source: Nationwide House Price Index, Volterra
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Nationwide Price
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-30.00%
Research Summer 2014
UK Residential Quarterly
Prime Central London property market Strutt & Parker’s data for the second quarter of 2014 showed that nearly 47% of all buyers in Prime Central London (PCL) are originally from overseas. Figure 2. PCL Buyer Nationalities for Q1 2014 (Removing UK – Domestic market)
Africa Asia Central America Eastern Europe Middle East North America Northern Europe Pacific Islands Australia South America Southern Europe UK - Abroad Western Europe Source: Strutt & Parker
Comparing this quarter to the same period last year there was an increase in buyers from Asia, Northern and Southern Europe and UK – Abroad. Not surprising due to current geopolitical issues there was a slight decrease in buyers from Eastern Europe. By the numbers Table 1. UK Residential Transactions Number of Properties Sold for all residential property types
1
Q2 2014
2
Quarterly Average
Greater London
England & Wales (excluding London)
Scotland
11,066
74,646
24,351
19,242
122,505
20,913
Total Value of Properties Sold (billions) for all residential property types
1
Q2 2014
2
Quarterly Average
Greater London
England & Wales (excluding London)
Scotland
£5.9
£16.1
£3.9
£9.1
£25.3
£3.3
Source: Land Registry, Property Database, Registers of Scotland, Strutt & Parker 1 Data for Greater London and England & Wales figures includes the latest reported transactions from April through June 2014; Scotland includes the latest reported transactions from April through June 2014. 2 Quarterly Average considers second quarters for the previous two years and includes the current quarter data to achieve a 3 year average for the second quarter. In Scotland, the same applies but reviewing the first quarter data points.
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“Interestingly and somewhat counterintuitively, Scotland is not showing a slow down through the data with values up 29%, and volumes up 22% on Q2 last year. Normally markets slow down due to uncertainty and on that basis we would have expected Scotland to pick up in the latter half of the year – at the moment it seems to be bucking the trend.” - Stephanie McMahon Head of Research
Research Summer 2014
UK Residential Quarterly
The regional variation in median prices is considerable as can be seen in the table below. Table 2: Regional house prices Region
Median price
Percent change (%)
East
£209,725
6.5%
East Midlands
£145,000
3.6%
Greater London
£365,304
14.9%
North East
£120,250
-2.3%
North West
£135,000
3.8%
South East
£240,000
3.4%
South West
£197,000
5.3%
Wales
£132,000
-0.4%
West Midlands
£152,000
4.1%
Yorkshire & The Humber
£135,500
3.4%
England & Wales
£187,500
4.2%
Scotland
£135,000
8.0%
3
Source: Land Registry, Registers of Scotland 3
Percent change has been calculated compared to appropriate same time period.
Buyers and sellers behaviour Table 3: Why Strutt & Parker buyers are buying compared to Q2 2013 4
Office Regions
Primary Home
Secondary Home
Investment
Central East Anglia Midlands North South East South West Scotland Source: Strutt & Parker 4 These are in reference to the Strutt & Parker office regions and do not correlate to UK geographical boundaries.
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Research Summer 2014
UK Residential Quarterly
Country House Highlights For the first time this quarter, Strutt & Parker has also analysed the behaviour profiles of our buyers and sellers who sold homes or purchased homes over £2million outside of London. Our first highlight looks at how these clients compare to our overall UK and London buyers in terms of how they finance their purchases. Figure 3. Buyer Source of Finance for Q2 2014
well as foreign nationals who own houses in London and
70% 60% 50% 40%
UK London
30%
UK (£2M+) 20% 10% 0% Cash
Cash/Mortgage
“Last year has shown a distinct increase in international buyers, including expats as
Other
Source: Strutt & Parker
Buyers and sellers behaviour Prime Central London The difference between PCL and the rest of the UK is also apparent in our buyer and seller behavioural data. For example, PCL has nearly 47% of its buyers coming from somewhere outside of the UK, however, that figure declines to 6% outside of PCL.
have decided to settle with stronger roots in the UK. They have stretched out to the Cotswolds and Hampshire specifically. We are starting to see a significant increase in enquiries from London based British purchasers looking to move out to the country and I am sure it will only be a matter of time before the balance returns to normal.” - James Mackenzie
We also found that people buy their homes for different reasons when you look at the two different geographies.
Nearly 50% of buyers in PCL move from somewhere else in London. In the UK that figure declines to nearly 14% but interestingly when looking at the £2million+ market outside of London, the figure jumps back up to over 20%.
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Partner, Country Homes Department
Research Summer 2014
UK Residential Quarterly
Forecast: Still looking up for 2014 There remains uncertainty over the near term outlook for the national housing market. The gradual strengthening in growth within the UK economy is being met by some caution against risk. Productivity and wage growth continued to fail to match the increase in output and fall in unemployment in the UK during the second quarter of 2014. However, the risks remain subdued, and consequently our economic advisors Volterra have set their forecast for UK house price growth in 2014 to 8%. Various recent interventions aimed at curbing the housing market appear so far to have had little impact. In April 2014, new rules came into force under the Mortgage Market Review (MMR) which require lenders to dissect borrowers’ income and expenditure patterns in more detail and stress test their ability to be able to repay their mortgage. More recently the Bank of England announced plans to limit the proportion of mortgages that lenders can offer at more than 4.5 times a borrower’s income. In reality both of these measures are simply extensions of responsible lending practises that most banks were already doing, and initial statistics on lending rates, transaction levels and prices do not suggest they have had any impact on the national housing market. However, many still expect interest rates to rise during 2014, and once they begin to rise this may have a dampening effect on the housing market, most specifically in the mainstream markets where the majority of purchases are dependent upon mortgages. It is important to point out that, regardless of the performance of the rest of the UK’s housing market, PCL continues to be very different to the rest of the country. The PCL market is particularly difficult to forecast because it is made up of a wide range of locations and price ranges. Transaction levels in the £2-5m price bracket have remained high in Q2 2014; although Agents are reporting that a softening in purchaser activity has extended to some parts of the £2m plus sector. In contrast, we have seen unprecedented growth and activity in the sub £1m price bracket, and also in expanding parts of North and South West London. The current transactions and price data therefore does not suggest a comprehensive slowdown for PCL as a whole. Whereas improved economic foundations would certainly suggest that prices will continue to rise over the next few years, the biggest perceived uncertainty surrounding the property markets over 2014-2015 will continue to be the looming election. This will be most significant around the £2m price bracket due to the potential change of government and associated possibility of a mansion tax. We therefore expect that price growth during the remainder of 2014, and even more so in 2015, will be sensitive to prevailing political press and expectations. After this, we expect sustainable growth to return throughout 2016 and 2017. Table 4. Residential Price Forecast Q2 2014 2014
2015
2016
2017
Prime Central London
4.5%
2.0%
6.5%
6.5%
UK
8.0%
5.5%
7.5%
7.5%
Source: Strutt & Parker, Volterra Methodology As the housing market is seasonal, for the purposes of this report; data is compared year on year, i.e. looking at Q2 2014 in light of changes since Q3 2013. Data may also be compared on a rolling month on month basis. When referring to the PCL market it includes those markets which Strutt & Parker operate in (Knightsbridge, Belgravia, Kensington, Chelsea, Notting Hill & Fulham) and as such is reflective of London’s most prime markets. Economic views are attributed to Strutt & Parker’s retained economic advisors, Volterra. Additionally, Lonres.com data is used to assess the London sales and lettings market. The behavioural data is collected from our activity in PCL markets: our proprietary “behavioural data” is not representative of the UK as a whole. The global economy remains volatile and therefore there is risk that any market commentary provided will become out-dated within a very short timescale.
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Research Summer 2014
UK Residential Quarterly
“With election fever mounting, this does not appear to be affecting the market outside of London as lack of stock continues to drive the market. The autumn of 2014 may in hindsight be a canny time to be selling.” - Michael Fiddes Partner, Head of Regional Residential Agency
Source: Land Registry (data published July 2014), Registers of Scotland (data published July 2014)
Number of properties sold year to date Value of those properties sold year to date
Contact us Michael Fiddes Head of Agency
[email protected]
Annabel Clery Manager of Agency
[email protected]
Vanessa Hale Research
[email protected]
Strutt & Parker is the sole UK member of Christie’s International Real Estate. This places us at the heart of the world’s leading network of luxury real estate specialists, connecting our expertise, service ethos and UK coverage to high net worth individuals and property markets globally. Copyright Strutt & Parker, 2014. All rights reserved. No part of this publication may be reproduced or transmitted in any form without prior written consent by Strutt & Parker. The information contained herein is general in nature and is not intended, and should be construed, as professional advise or opinion provided to the user, not as a recommendation of any particular approach. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.
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