House price data for December 2008 issued today by the Land Registry indicates that UK house prices fell by 13.5% during 2008. Property portfolio managers Young Group takes the opportunity to set 2008’s house price movements in its wider context against equity and pension fund performance. Neil Young, Young Group’s CEO also reflects upon untapped demand and constrained supply that could indicate future rapid recovery of house prices.
“There’s truth behind the phrase ‘as safe as houses’.
People will always need a roof over their heads; there’s
an inherent demand for homes.”
Neil Young, CEO – Young Group
The Property Market:
• Property prices do fall e.g. in the early 1990s, property in England fell by 15%.
• Property prices have fallen only in 5 out of the last 55 years. House prices are currently more than three times the level of the early 1990s. (Source: DCLG)
• Property has a 100% record of price recovery.
• Taking an aggregate of indicators, UK property prices fall by an average of 12.8% during 2008. (Source: Chesterton Poll of Polls)
• Historically property doubles in value every 7-10 years. (Source: DCLG)
The Financial Market:
• Stocks also fall e.g. in the 3 months post ‘Black Monday’ in 1987 the FTSE 100 fell by 33%.
• Since the FTSE 100’s last high of 6,939 in Dec 1999, it has still not recovered (reaching a high in September 2007 of 6,752)
• The value of the FTSE 100 fell by 30.1% during 2008 (compared to a fall of 12.8% in house prices)
• The value of UK Pension funds fell by 31.7% during 2008
• Companies cease trading: Lehman Brothers, Northern Rock, Railtrack, Rover, etc – where 100% of the investment can be lost overnight
Neil Young, CEO – Young Group, comments; “There’s truth behind the phrase ‘as safe as houses’. People will always need a roof over their heads; there’s an inherent demand for homes but the building industry is on its knees at the moment and new homes just aren’t being built. There is pent up demand both from first time buyers and investors. This coupled with a shortage of supply, particularly in the South East of the UK. Simple economics dictates that once mortgage availability is back on track, house prices will recover relatively quickly.”
Whether the same can be said for equities, and people’s pension funds, remains to be seen.
Young Group’s own Young Index of property investor sentiment shows the confidence that buy-to-let investors have in the sector, and particularly in the London market. There is no evidence of an exodus from the buy-to-let sector, investors have a positive long term outlook for house prices, buy-to-let yields are up and there is demand for finance (for property purchase and refinance).
Young Index Q4 2008
Mortgage Choice Tops Investor’s Wish Lists
Rather than base rate cuts, wider mortgage choice and house price stability are seen as vital to getting the property market moving again. Young Index Q4 2008 shows that there is pent up demand for property purchases, but buyers are hampered by the lack of mortgage products available. These same potential buyers believe that further base rate cuts are not the answer to unlocking the market.
No Evidence of Buy-to-Let Exodus
The Young Index results for Q4 2008 show no evidence of an exodus from buy-to-let. Indeed, 96% of investors indicated that they intend to hold investment property over the next 12 months. The survey shows that the majority of buy-to-let investors are looking to the medium to long-term. More than 1/3rd of respondents intend to hold their property investments for at least the next 10 years and more than 20% expect to retain their portfolios for 15 years or more.
This should come as no surprise. By far the most common reason for people holding property investments is to provide for their future. Their long term aim is to build wealth to boost their pension provision. Neil Young points out; “To a certain extent, short term market fluctuations aren’t a concern to most investors as long as their property is financed appropriately and paying for itself in the short term.
Buy-to-Let Yields Up
Investors who keep a watchful eye on the performance of their investments will have been buoyed by the Government’s two rate cuts, totaling 2%. The 3 million+ people currently on tracker mortgages will have seen an immediate positive impact on their monthly income/expenditure schedule and an increase in their investments’ yields as mortgage costs have been cut by approximately 40%.
Property Price Outlook
This quarter’s Young Index shows a slight decrease in positive sentiment towards house prices across the UK as a whole, but most noticeably in areas outside of London. Young Group’s quarterly market survey of buy-to-let investor sentiment indicates that 36% of investors believe that property prices in the capital will remain at current levels or above by this time next year showing a level of confidence more than 3 times greater than for property outside of the capital (where just 11% believe the same to be true).
Confidence in the capital’s property market remains around four times higher than the rest of the UK, with 33% of investors indicating that they intend to buy additional buy-to-let investments within London during the next 12 months.
Neil Young, CEO of Young Group attributes this to the inherent gap between supply and demand that exists in London; the capital has the advantage of strong demand for housing from a population that is expected to swell from 7.2 million to more than 8 million by 2020 and is also the city most affected by changes to the country’s demographics. As a nation we’re living longer, marrying later and more likely to live alone than ever before. This growing demand for housing is against a backdrop of falling construction levels. Despite the government’s commitment to helping the industry deliver two million new homes by 2016, the credit crunch has limited the amount of bank finance available to developers to fund new housing projects. According to the Royal Institution of Chartered Surveyors (RICS), only 66,200 homes were built across the UK in 2008 and in the first quarter of 2009 fewer than 25,000 properties are expected to be delivered.
Young Index: Summary Results for Q4 2008
• 96% of investors intend to hold their residential property investments for the next 12 months. 37% intend to hold their assets for at least 10 years and more than 20% of buy-to-let investors aim to keep their property investments for the next 15 years or more.
• 33% intend to buy additional residential property investments within London within the next 12 months, whereas just 8% of investors intend to buy UK residential property outside of the capital.
• The outlook for London property prices is 3 times higher than for the rest of the UK. 36% of investors believe that London prices will be at current levels or higher by this time next year, whereas just 10% expect the same to be true of UK property outside London.
• Investors are focusing on mortgage finance; 50% now review their mortgage every 3-6 months and almost 1 in 4 are reviewing their finance options more than once a quarter.
• 69% of respondents expect the Bank of England base rate to be at or below the current level of 2.0% at the end of 2009, and most predict it to stand at 1.0% at that time.
About Young Index
Young Index is a quarterly gauge of market sentiment within the buy-to-let sector, polling Young Group’s client base of around 500 active investors who hold UK investment property.
About Young Group (www.younggroup.co.uk)
Young Group specialises in providing Property Portfolio Management services to private investors, offering the best off-plan direct investment opportunities in London.
Young Group manages the entire investment process from sourcing the opportunities through to financing (Young Finance: www.youngfinance.co.uk), furnishing (Young Furnishing: www.youngfurnishing.co.uk) and letting (Young London: www.younglondon.co.uk). Young Group owns all the property that it sells, and also retains a number of units in each development for its own portfolio. As the principal in every transaction, Young Group does not realise any profits until completion and has transacted in excess of 1,700 apartments, with a retail value of more than £700 million. The majority of our units are bought by clients for their private portfolios. The Group’s portfolio managers liaise with the Young London estate agency team in advance of completion to let investors’ apartments to quality tenants, often through corporate lets.
Young Group clients have access to all available finance products via Young Group’s FSA regulated mortgage desk, Young Finance. Young Finance is an appointed representative of Thinc Assured Network, one of the UK’s largest financial advisory firms and is not tied to any group of lenders, nor does it charge commission or transaction fees.
• Young Group’s iconic Canary Wharf development, The Landmark (www.TheLandmarkE14.com), has been awarded two Daily Mail Property Awards in the categories of best high rise development and best high rise architecture. The Landmark East Tower rises to a height of 459 ft, making it one of the tallest residential properties in Europe.
• Young Group’s COO, Sylvana Young, has been named Bradford and Bingley’s Property Woman of the Year, 2008 for London.
Young Group supports NORWOOD and CHILDREN with LEUKAEMIA, two charities particularly close to our heart, donating £50 per property exchange and providing additional support throughout the year. Visit www.younggroup.co.uk to learn more.