Published: 24/05/2018
As one cycle closes and another begins, a ‘new normal’ has emerged for the UK residential property market, and with it a host of opportunities for property professionals, buyers and sellers alike.There has been something quite reassuring about the behaviour of the property market over the last 12 months. Despite the best efforts of the national press to kindle the flame of panic, reality and common sense seem to have won the day. As the chart below makes clear, the housing market is no longer as exciting as it was a decade ago, but nor is it as volatile.
The property market, like most markets, is cyclical in nature. The reason for these cycles is a hotly debated topic amongst economists, but from a housing market point-of-view, it is mostly explained by ‘sentiment’. When people feel like prices have gone up for long enough, some will try to reap the rewards of ‘calling the top’ and selling when prices reach their peak.
As this negative sentiment permeates through the market, buyers hold-off buying until they think prices have hit bottom, and then they will try to profit from ‘calling the bottom’. At the time of writing, Spring 2018, we
find ourselves at the threshold between two cycles. The departing cycle began after the credit crunch in 2009. On the chart, this cycle extends from the big blue ‘dip’ in the middle all the way to the right. The next cycle will eventually appear to the right of that.
Crystal-ball gazing is always a mistake, but there are specific rules of thumb which might tell us what to expect from the next cycle. These cycles tend to last somewhere between seven and ten years over which time year-on-year price growth rises, peaks and falls. The degree to which they increase and severity with which they fall depends on a host of factors, but the one which has the most influence is lending.
In 2009, the housing market fell flat on its face because mortgage finance dried up. There was nothing wrong with the supply of property in the UK, as was the case in Spain where they had to deal with the impact of a house building glut, which at its worst in 2010 had created 1.7 million unsold and empty properties.
In the UK, the reverse has traditionally been true whereby a lack of supply has maintained upwards pressure on prices. Likewise, nothing particularly dramatic happened to demand - the profile of which hasn’t changed significantly in the last 30 years. All that changed was that the demand was rendered impotent as the global credit crunch caused the banks’ margins to evaporate. A period of restricted lending was required to restore those margins before the taps could be turned back on again.
What followed was a project known in the trade as MMR or mortgage market review. Imposed by the government, this sought to enforce more sensible and qualified lending to make sure that house price froth didn’t build into a bubble (and a crash). This massively important project will underlie everything about the property market over the next cycle. It’s the new normal. The removal of one of the primary potential sources of a bubble, will make the housing market much more predictable and allow us all to advise our clients with the benefit of more forward-visibility.
For more information please get in touch with our award winning Hammersmith London W6 Estate Agents, 020 8222 9958 sales@willmotts.com