Government tinkering such as Help to Buy has inflated prices
(Image credit: George Clerk www.georgeclerk.com)
It's been a sleepy year for the property market. The average house cost £211,966 in January and £215,734 in November, according to figures from Halifax. That's a gain ofjust 1.8%.London, which during upswings often outperforms the rest of the country, is now underperforming it. By October the average cost of a house in the capital had slipped by 1.6% year-on-year to £472,232, says the Land Registry.
The market's lacklustre performance in 2019 continues a trend observed in the past few years; prices have made small percentage gains or trod water. This is hardly scintillating material for dinner-party dissections of the property market, but as we like to point out regularly, it is good news in the long term.
The price rises of recent years, fuelled by loose credit and government tinkering such as Help to Buy, which artificially fuelled demand, have propelled the market to unaffordable levels. The house price-to-earnings ratio is steadily declining from record peaks of over seven but the credit bubble pushed it far beyond the usual levels of below four seen in the 1980s and 1990s.
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Flat prices in conjunction with regular increases in wages are a painless and steady way for the market to fall to affordable levels. It bodes well, then, that annual wage growth has strengthened in the past year and reached an 11-year high of 3.9% in June.The bigger picture is also encouraging for those keen for the market to cool. House prices in Great Britain rose by 34% on average in the pastten years.
But once the figures are adjusted for inflation, they have fallen 0.3%, according to a Savills report using Nationwide data. The subdued 2010s followed a 67.1% real-terms increase in the 2000s and a 13.9% slide in the 1990s.
The outlook for 2020
There has been widespread talk of a "Boris bounce" for the property market as well as for shares. There is now certainty over our departure from the EU and a clear majority in Parliament reduces political uncertainty. However, while Brexit-related uncertainty hampered the market in the past three years, its removal doesn't necessarily mean that the market will rocket. As Emma Powell and Alex Newman point out in the Investors Chronicle, the housing market began to slow in 2015 before the referendum.
The main problem remains affordability, notes Callum Jones in The Times. The house price-to-earnings ratio was still 6.8 in the third quarter of 2019; along with mortgage loan-to-income restrictions, this makes it difficult for buyers to muster deposits and bolster overall prices.
Throw in dwindling support from Help to Buy and the upshot, reckons Capital Economics, is that house-price growth will "only pick up a little" next year.
Where to look on the Crossrail route
In recent years there have been plenty of breathless articles in the financial press highlighting the scope for house-price rises in certain areas owing to the arrival of Crossrail, or the Elizabeth Line. But it is always hard to gauge how much a local price rise owes to a specific project and how much to a wider market upswing.
In any case, a Savills study suggests that house-price growth has faltered close to two-thirds of the Crossrail stations, as Anna White points out in the Evening Standard. How much this has to do with the delay to Crossrail and how much with the wider London slowdown is a moot point, but those in the market for a new home with good transport links should consider some of these areas. In each case, general regeneration may give prices more pep, reckons White.
One to look at is Southall, where the Crossrail station and new houses are reviving a "tired high street". The typical house costs £310,000. Slough, once Crossrail opens, will be almost half an hour closer to Canary Wharf, while multimillion pound investment will transform the town centre, says Renata Holland in the Evening Standard. The average house will set you back £243,000. Acton, meanwhile, was once regarded as "Ealing and Chiswick's poor relation", says Andrea Dean in Metro, but it is now on an "equal footing". A house costs £443,000.
Investing in empty property
Buying an empty property may seem like a straightforward way of buying a house on the cheap. There are certainly plenty to choose from: in England alone, there are over 200,000 that have been empty for at least six months, the legal definition of a long-term vacancy. Owners struggle to sell or derive an income from them sothey may be keen to offload them for a reasonable price. But be sure the sums add up.
Finding a vacant property can be as easy as going for a drive around the area you're interested in and spotting one. Otherwise, it might be worth contacting estate agents keen to make a commission, or local councils as they will be keen to get the property back into use, says Chris Menon in Moneywise. Monitor auctions around the area, too. If empty properties don't sell you can contact the real-estate agent to discuss a price. Once you find the property, a search on the HM Land Registry website gives you the name of the owner, property limits and the risk of flooding.
Once you've found an empty dwelling, the key issue to consider is how much work it needs and how much it will cost. Could the sum be so high that it negates the saving on the empty house compared with a previously inhabited house needing no work? Once you begin enquiring about the price, get a structural surveyor in to produce a full report.
Factor in potential financial assistance too. There are initiatives offered by several councils that are designed to enable landlords and homeowners to apply for and receive up to £25,000 to refurbish an empty house to then rent out or sell, says Angelique Ruzicka in This is Money. The loans schemes began as a solution to housing shortages and unoccupied properties that have posed a problem for those living close by. Council loans are repayable after three years of renting out the property or when the property is sold.
Do your research and ensure you qualify for an empty home scheme, but otherwise mortgages are an option, says Menon. However, "many lenders may only lend up to 80% to 95% of the current value of the property and may withhold some funds as a retention' until works are complete". If the property is entirely uninhabitable, you will need a broker to find you a specialist provider.
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Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She has previously worked for MoneyWeek.
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