House prices in the UK will see an average increase of 3% over the course of next year, bolstered by recent changes to Stamp Duty, continuing demand and lack of supply of property, according to the RICS housing forecast for 2015.
The forecast looks ahead to the next 12 months, across all parts of the housing market, from house prices, sales, rents and housing starts and repossession levels.
Across the UK, RICS expect all parts of the country to see modest price rises during 2015, at an average of 3%. Meanwhile, the South West, Wales and London will experience the lowest rises with prices increasing by 2% and zero percent respectively.
Having outperformed in the early stages of the recovery, chartered surveyors reported London’s housing market was ‘pausing for breath’ both in terms of pricing and activity towards the end of 2014. This does however mask significantly different behaviour across different parts of the capital and is reflected in the RICS forecast with the eastern boroughs and some other non-prime areas still likely to see more buoyant market conditions persist through 2015, RICS said.
The growth in rental demand softened in the early part of 2014 as the sales market began to recover across the UK, and potential purchasers took advantage of the ‘Help to Buy’ scheme. However, enquiries to rent property have begun to pick-up once again and comfortably outstrip new supply of rental property from landlords. As a result, RICS expects rents to continue pushing upwards over the next 12 months, to a 2% increase in rents. Chartered surveyors suggesting that the strongest rises are likely to be recorded in the South West and the North East of England. Rents in the capital are likely to rise broadly in line with the national average.
RICS says the number of sales transactions should see a further increase during 2015, moving up to 1.25m (from 1.22m in 2014). Although there are some concerns about mortgage availability in the wake of the Mortgage Market Review, a firm economy and stamp duty reform should underpin activity levels. Although this figure represents an improvement on the past few years, to put this in context, in 2006 total transactions stood well above at 1.67m.
Lack of supply to the housing market remains a running trend, and one that cannot be addressed fast enough, surveyors said. However, RICS is seeing increasing levels of house building projects underway, and as a result, the organisation forecasts housing starts to rise to 155,000 in England during the year. This is compared to 125,000 in 2013 and only around 100,000 in 2012. While this is an encouraging trend, RICS warns that is still insufficient to address the more rapid growth in population and will leave significant shortfalls in all tenures.
The number of houses taken into possession are expected to have fallen in 2014 to around 23,000, the lowest since 2006. Given the current macroeconomic picture, RICS anticipates that this could decline to below 20,000 over the course of the next 12 months, particularly as around 90% of new loans are being taken out on fixed rates, which provide some degree of protection against any adverse interest rate changes.
Simon Rubinsohn, RICS Chief Economist, said: “2014 was a significant year for the property market as a more broadly based recovery took hold. Help to Buy funding helped to support the turnaround alongside the more positive trend in the wider economy. Although the MMR may now be resulting in mortgage lenders being a little more discriminating in the supply of finance, the recently announced, and long overdue reform of stamp duty, is likely to provide a tonic for the market across many parts of the country, particularly for first-time buyers.
“That said, the bigger affordability issue is not going to go away highlighting just how important it is to speed up the supply pipeline of new homes over the coming years.”
Jeremy Blackburn, RICS head of UK policy, added: “The political ambition to meet the UK’s housing deficit of 240,000 means that debates around planning, development and delivery will monopolise the pre-election period in the run up to May 2015. We’ve seen four housing ministers in this Parliament and there is no reason to think that housing won’t continue to be a political football in the next.
“What we need is certainty, clarity and confidence from government to keep us building homes. Reforms to Stamp Duty should underpin public confidence and lead to a greater number of housing transactions and we would now look to any future government to review Council Tax.”