House Prices Trends 2014

News at Eden Harper | 06/01/2013

It’s been a very interesting year for the housing market. From Help to Buy, to the introduction of Capital Gains Tax on foreign buyers, to the debate over the Mansion Tax - there’s been a lot to get our heads round.

However, one thing is for sure - it’s been a great year for house prices. Given the huge increases in such a short time, it’s likely that there will be further rises in the New Year, as first time buyers and investors are likely to return to the market in large numbers. The acute shortage of property in London and surrounding suburban areas have also been contributory factors to the rises we’ve seen in 2013.  While some people have concerns about a bubble building due to prices, we personally see interest rates as a larger deciding factor in terms of how the housing market will react. Confidence in property as a long term investment is strong, so it looks as if prices will only move one way as the economy improves: and that’s up.

Here’s a quick look at the key points from our Brixton & Battersea estate agents experts when it comes to house price trends 2014:

Population Growth

It’s that age-old question of supply and demand: when there’s not a lot of something available, that product becomes valuable and prices increase. With the population set to grow exponentially in the coming years, this could put pressure on housing stock, as new homes aren’t being built quickly enough. Although there have been promises to build more housing - for example London Mayor Boris Johnson has promised to build hundreds of thousands of houses in the UK capital, it’s clear that homes for first time buyers are massively in demand. Along with historically low mortgage rates, consumer confidence as the economy seems to be picking up and Help to Buy (which we will talk about below), demand is likely to be continued to be fuelled as the amount of people wanting to buy property outstrips the available property on the market. However, what’s interesting is that at a local level, just a couple of weeks after New Year, there are already signs that new properties are coming onto the market. From a supply and demand perspective, if this materialises as new instructions, it’s likely to slow price increases.

Help to Buy

The second phase of Help to Buy was rolled out in October last year. The first phase only applied to newly-built property bought by first-time buyers, while the second phase applied to all property under £600,000 and loans were made available to all borrowers. The scheme involves the government backing 95 percent loans given out to borrowers and has been criticised by some who claim that in the event of an interest rate rise, borrowers could be massively squeezed and exposed to negative equity. It is also likely to inflate house prices further, with the risk of a bubble. 

As to what happens, we’ll have to wait and see if the Chancellor George Osborne bows to pressure from Bank of England Governor Mark Carney and indicates as to when he’s going to wind up the scheme. However, with loans doubling within one month, it seems unlikely Help to Buy is going to lose popularity any time soon.

Interest Rates

Interest rates have been at 0.5 percent for nearly five years - a record low. Initially the policy was bought in to stimulate economic recovery, but there have been pitfalls, with savings and pension-payout rates dropping.

The Bank of England’s governor, Mark Carney, has indicated that interest rates will increase when unemployment hits seven percent - however, with the economy showing the green shoots of recovery; it seems that that target could be reached earlier than predicted. Recently Carney’s seemed to backtrack, saying the Bank won’t necessarily raise them even if the magic figure of seven percent is reached.

When interest rates do increase, this will be the test as to how the housing market will bear out. However, this is unlikely to happen in 2014, unless inflation increases unexpectedly.

Capital Gains Tax

Foreign investors will be submitted to Capital Gains Tax as from April 2015, as was announced in the Autumn Statement. This was much anticipated - as currently overseas buyers are exempt from this tax - unlike UK citizens. This, in our opinion, is unlikely to have a massive impact on the market. This is because there are an awful lot of advantages to having property in the UK capital. Most people in the property business are more concerned about interest rates rising, as so many of us are used to low interest rates (as discussed above).

Mansion Tax

Both Deputy Prime Minister Nick Clegg and Shadow Chancellor Ed Balls have indicated their preference for a Mansion Tax on properties worth more than £2 million. This may be introduced after 2015 election, but is unlikely to be on the cards for 2014. However, it’s one to watch.

All in all, when it comes to house prices trends for 2014, we’re very optimistic. We’re looking forward to the year ahead and a great year for property!