Housing
2015 ended with two questions – what to do
about UK housing and the perennial issue of whether house prices will go up or
down – but 2016 will bring so much more than this. The key question to me is
following the US Central Bank’s decision to raise interest rates when will the
Bank of England follow suit? Well that and the changes to stamp duty which will
make those second homes or buy-to-let homes that little more expensive.
Over the lifetime of the younger generation
they have become accustomed to the record low of 0.5% for the Bank of England
base rate – now seven years! So this year may bring a big shock to people.
There has much discussion about when will the rates rise, in fact for nearly 2
years people have been saying rates will rise, so will 2016 be any different?
For its part, the Bank of England continues
to sit on the fence, effectively saying "wait and see". My view
was that in Q3 this year we’ll see the first 0.25% rise with a further 0.25%
in Q4 leaving us this time next year standing at a 1% - not a view shared bythe MPC who have said no rises until 2017. But it makes sense, the
economy is healthier and a gradual increase shouldn’t put too much strain on
growth.
For the housing market 2016 will bring ups
and downs. The historically very low mortgage rates have made large mortgages
affordable. The Help-to-Buy scheme has kept house prices and sales at the top
end but all of this has also created scenarios where people own houses they
probably can’t afford when rates move back to a more historic norm. The changes
to buy-to-let properties coming will no doubt mean a rush for purchases before
the end of March. So expect a buoyant Q1 followed by prices easing off
thereafter, but let’s be honest we are not talking a cliff but a small step!
Commercial property
The outlook for capital markets in 2016 is
very positive which will ultimately influence the investment made into
strategies over the coming years. There is also an increase in the availability
of debt and this is something clearly coming across in the regions as corporate
plus alternative lenders seek to capitalise on the market. A rise in interest
rates will impact the sector but ultimately it will come down to how much risk
was taken on. Let’s be honest if you are excessively geared with secondary
assets then rate rises will no doubt see your end but that isn’t the market we
are in. Sensibility has arisen over the last few years and yes it will increase
costs but plans are in place, whether low LTV, interest rate swaps or even no
debt, to mitigate this risk.
There is a significant undercurrent of caution across Europe as a result
of geo-political issues, political uncertainty and economic decline elsewhere.
Spain is becoming more bullish with Germany and France expected to do better
than they did in 2015.
To me the commercial market will see two key developments in 2016 – a
decline in the availability of prime assets but the opportunity to develop the
next primate asset.
Feel free to contact me 0113 288 2276
or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to
property and construction.
Enjoy the weekend
Lee
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