A pick up in demand for UK property could send house prices soaring by 17% over the next five years according to the autumn 2013 report from CBRE. The improvement in lending along with the shortage of new homes arriving on the market also look set to contribute to rising property prices around the UK. The Funding for Lending scheme has helped improve mortgage rates and the Help to Buy scheme has already been a success, with 15,000 reservations made for homes since April. This figure is rising continuously.
The second phase of Help to Buy has also been brought forward and, as a result, many potential buyers have begun searching online property portals for their next purchase. There has been particular interest in the London market therefore many buyers are now able to begin looking in higher priced areas as a result of the scheme. Increasing consumer confidence and the low interest rates offered by lenders should drive house prices up and growth looks set to continue up until 2018 according to the report.
However, interest rates from lenders are expected to increase halfway through the forecast period. This, along with increasing property prices may hinder affordability which could, in turn, curb house price growth. Help to Buy may be risky for the market in the UK should it be too successful according to the CBRE report.
The Bank of England and the Treasury are set to carefully monitor the market to ensure that housing bubbles are not created and that the Help to Buy is not over stimulating the market. The main risks to the housing market include affordability constraints, absence of growth in real incomes and the strengthening pound. Optimism surrounding the market could also suffer as a result especially when it comes to homeowners trying to sell their house fast.
Land prices are already under pressure, particularly in London where a number of developers are set to fill their books for 2015/2016. Competition for land to build new properties on could result in a rise in land prices over the next quarter. In the south east activity in the land market has increased over the last quarter when compared with the previous quarter. Across commuter and university towns, restricted land supply and increasing demand from developers has increased sales values to between £200 and £300 per square foot.
In the south west, land values have stayed relatively stable over the last quarter but the Midlands has seen a rise of 5% on land values over the last quarter. Land builders are still focussing on areas where sales rates are still strong and they are also keen to secure immediate sites which are in short supply. In Scotland, builders are concentrating on the central belt and Aberdeen but some will consider secondary sites where land prices are rising.
The increase in land coupled with rising confidence in the market, low interest rates and government aid all look set to contribute to the rise in house prices over the next five years. It is unclear whether the Help to Buy scheme will help the market considerably or hinder it over the long term. However, the Bank of England continues to monitor the market to prevent many buyers from being out priced.