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London

The UK housing market outside London will remain stagnant in 2012 – but growth will return in 2013

Say Jones Lang LaSalle in their 2012 Residential market forecast report


London, 17th November 2011 - The 2012 Jones Lang LaSalle residential market forecasts report, released this week, suggest that there will be no change in average UK property prices over the year 2012, although growth is expected to resume in 2013.

Neil Chegwidden, Residential Research Director at Jones Lang LaSalle, commented: “Our forecasts suggest that the Eurozone crisis will continue to dent confidence for the first half of 2012, leading to some small house price falls.

“However, these problems will begin to fade during the second half of the year and prices will regain ground to finish the year at roughly the same point as in January.

“The fundamental issue is the low level of house building, which remains far below the level the country needs. With homes in such short supply, and interest rates likely to remain low, it is hard to envisage prices falling steeply.”

London will remain an exception, with prices rising by 2% over the year, with the fastest growth being seen in Prime Central London (4%) and the best new developments (4%).
 
Chegwidden added: “London’s economic growth is expected to be stronger than the UK as a whole as it continues to attract strong demand from international investors, particularly for central locations where supply is most constrained.”

Meanwhile, Northern and Midland regions will have a much more difficult year with average prices dropping by 2%. Higher levels of unemployment, weaker job creation and the effect of public sector redundancies will weigh heavier on these regions, although there will be “bright spots” such as York and parts of Manchester and Cheshire that fare more positively. The forecasts suggest that stronger growth will resume from 2013.

The report also shows that there are fundamental shifts occurring in the housing market that are arguably more important than price changes.

Regulatory changes, combined with on-going funding issues, suggest that mortgage volumes will remain depressed compared with those seen before the financial crisis, effectively denying homeownership to most of a generation.

Jon Neale, Residential Research Director at Jones Lang LaSalle, said: “The Eurozone crisis, combined with a stricter global regulatory environment, suggests that the mortgage market will not rapidly return to the conditions seen for much of the twenty years leading up to the financial crisis.”

First-time buyers will continue to struggle unless they have access to a significant deposit. While mortgages at loan-to-values of 80% or above may become more widely available, they are likely to remain far more expensive than other products.

The growth of the rental sector, which has intensified since the financial crisis, is likely to continue. Landlords with equity will find it easier to access the best mortgage deals than first-time buyers, and demand for the sector will almost certainly increase.

Neale commented: “The rental sector is increasingly becoming the “norm”, with owner-occupation reserved for the wealthy few. In 2009/10, a majority some 58% of all those moving house were becoming tenants, while 70% of new households found their home within the sector.”

“These trends will continue, and even intensify over the next few years – the country is becoming increasingly polarised between older, equity-rich owners and younger, renting households who are unable to get a foot on the property ladder.”

According to Neale, between 2007 and 2010 alone, an additional 664,000 households became tenants. Over the same period, the number of owner-occupiers dropped by 208,000, and the number of people with mortgages dropped by 532,000.

The increasing demand for the sector, and relatively limited supply, indicates that rents will continue to rise in the near term, particularly in London where growth is most marked. By 2015/16, there could be more tenants than mortgages in the capital.

The combination of the growth of the rental sector, a limited mortgage market and the concentration of owner-occupation among older, less mobile households suggests that transactions throughout the housing market will remain at a relatively low level for the foreseeable future.

Development will also be constrained, with the number of houses built in England remaining below 140,000 per annum for the next five years, well below the estimated 232,000 that are needed each year.