There are mixed thoughts across the UK on the current state of the property market and the prospects to come. In some regions economists believe it’s the best it’s been in the last ten years, while others are confident in the current slump, particularly in London. Here Paresh Raja, CEO of Market Financial Solutions (MFS), talks Finance Monthly through his thoughts on the future of the UK property market.
The UK has developed something of an obsession with homeownership. While our European neighbours are content with long-term leasing contracts, homeownership in the UK is as much of a personal milestone as it is a popular financial investment – a report by YouGov found that 80% of British adults are aspiring to buy a property within the next 10 years. As an investment, property is a resilient asset able to withstand periods of market volatility. At the same time, price appreciation as a consequence of demand positively contributes to home equity, increasing its resale value and potential to deliver long-term returns.
The allure of residential real estate has remained consistently high in the UK, and the Brexit announcement has done little to dampen investor appetite for property. The average house price has risen by an average of 0.37% per month since the referendum vote in June 2016. Should this trend continue, house prices could rise by as much as 50% over the next decade. While an impressive feat, the same YouGov report stated that 85% of respondents believes that owning a home is very difficult in today’s economic climate.
To ensure homeownership remains an attainable goal, the Government has pledged to increase the housing stock by promoting the construction of new homes across the UK. A housing white paper released earlier in the year has also set out the Government’s plan to reform the housing market and contribute to housing supply, though little has been done since then to demonstrate the Government’s commitment to supporting property investment. While this is a welcome measure, such a pledge needs to be informed by a long-term strategy that lays down the foundations for the ongoing support of the property market against any future economic and political shifts.
Of course, there are variety of different avenues for aspiring homeowners to jump on the property ladder should they struggle to acquire finance from traditional lenders. The Bank of Mum and Dad (BOMAD) has fast become a leading source of finance for millennials struggling to acquire a mortgage or buy a house in a desirable location. Parents are predicted to lend over £6.5 billion in 2017 to support the property aspirations of their children – a 30% increase on the amount loaned in 2016.
Considering the amount of property wealth that has been amassed by UK retirees and the Baby Boomer generation, the transfer of such wealth through inheritance constitutes a significant proportion of property transactions – a study by Royal London anticipated that over the coming decade, £400 billion worth of real estate would be passed on from older generations to those aged between 25 and 44. This transition will have profound impact on the wider property market.
Recent research commissioned by MFS found that that 36% of people across the country will be inheriting a property – equivalent to 18.64 million people. Interestingly, the research found that over half of people due to inherit a property will be looking to sell it as soon as possible so they can re-invest the money in a different asset or property of their choosing. A third would also look to take advantage of the long-term returns on offer by undertaking some form of refurbishment so that the house is in a better condition to sell or place on the rental market.
The challenge remains for the property sector to provide clear guidance around the options that exist for those seeking to maximise the potential gains of their real estate inheritance, while at the same time bringing new properties onto the market in improved conditions. Taking into account the full range of trends underpinning the property market, homeownership does not have to be an attainable goal for the few. The market is at a critical juncture, and with demand for property consistently high, there are likely to be significant opportunities arising over the coming year.