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Home Page > Finance > Real Estate > UK Property Predictions For 2008

UK Property Predictions For 2008

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Posted: Nov 24, 2007 |Comments: 0
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As we start to move into the last few weeks of 2007, it’s natural to look ahead to what might happen in 2008.

Often future predictions are made off the back of what’s happened over the last 12 months. And it’s been a very busy year for the UK property market.

There have been numerous changes and predictions for the future. We take a look at what’s happened so far in 2007, and how that could affect the market next year.

First off the big issue that affects all of us – house prices.

UK property prices have had an interesting year. Some organisations have reported prices going down; others have claimed they have gone up in some areas. Overall it seems likely there has been at the very least a slowdown in the growth of prices.

The current average price for a UK property is £225,826. And the Nationwide building society says in 2007 the annual price growth was 9.7 per cent.

But a new report it has just released has predicted zero per cent house price growth in 2008.

It says UK property prices will stay exactly as they are now. This means in real terms that the value of homes will fall, as the cost of living continues to rise.

The building society blames this potential ‘freeze’ on a slowdown in the wider economy. It points out that price growth was supported in 2007 by the strength of the British economy, especially in the financial and manufacturing sectors.

But over the next 12 months it expects economic growth to slow from three to two per cent. And when that is combined with lower disposable incomes caused by the cost of petrol and other rising bills, plus high interest rates and tighter lending conditions, it’s likely to slow the economy.

The Nationwide also believes there will be a fall in demand in buy to let houses, affecting UK property.

Of course, the likelihood is that any slowdown in price growth is going to be short-term only. Many experts agree that the long-term prospects for property value growth remain good. So it’s only something to worry about if you are considering selling property in the next 18 months or so.

Let’s take a closer look at one of the factors affecting prices – interest rates.

Since August last year, rates have gone up five times. But they have stayed the same for the last three months, and many people believe they will drop before the end of the year.

If the economy does see a slowdown as predicted, it’s likely that interest rates will go down again in 2008. This is good news, as it will ease some of the financial pressures squeezing people and give them a little more disposable income. This is likely to give the economy a small boost, which may in turn be good for UK property.

The other major factor to look at for 2008 was a huge source of controversy in 2007.

Home Information Packs, or HIPs, were first introduced for four bedroomed houses on 1st August this year, and extended to three bedroomed properties on 10th September.

A survey by the Royal Institution of Chartered Surveyors in September revealed that that the number of properties needing a HIP coming onto the market continued to fall, when compared to the same month in 2006.

And 73 per cent of surveyors who responded to the survey saw a decrease in three bedroom or larger properties coming onto the market.

Experts predict that the effect of HIPs will lessen in 2008. They believe people will get used to the idea of needing to compile a document before they can put their UK property up for sale. And in time that will mean the HIPs have very little real effect on the market. Whether that will happen in 2008 or 2009 remains to be seen.

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I have read that 2008 could be the end of Capitalism as we know it. I am not a Politics guru and therefore would like some informed replies to this question. I realise that any answer received will be conjecture and opinion, but would still like reasons and possible outcomes to the financial calamities that have befallen the world economies as a whole.
On another note, I have asked a similar question previously, but would like this one to be based on the UK.

i keep up to date with the latest nominal gdp and export data on the world’s countries and the imf, cia factbook are showing huge growth in those countries last year.
In exports Russia jumped over a couple countries including Canada and the UK.
In nominal gdp Russia and Brazil grew by 20-25 %. Both countries pulled ahead of Canada and Spain.

Introduction

The budget read on 2008 had strong impacts on the UK economy in a variety of sectors. Employment, commodity prices, consumer demand, EU currency and other macroeconomic issues are a few of the examples. Environmental concerns and many other segments have been affected by the vice chancellor’s speech. The essay will attempt to analyse some of the changes that the announcements made in these various concerns. (Elmeskov, 2008)

Effect of the budget announcement on the economy

Supply and demand curves

Source; http://www.williampolley.com/blog/images/2008/inc_sub21.html

The latter graph summarises some of the indifferences in the budget and some changes that occurred as a result of the announcement.

Supply and demand of commodities has changed depending on the nature of the industry. For instance the supply of alcoholics and cigarettes has gone down thus affecting the supply for the commodity too. This has occurred as a result of the announcement made on budget day; alcohol was increased by six percent over inflation. Spirits, wine and beer were all affected by this price elevation. (British Retail Consortium, 2008)

The speech has also affected the rate of availability of fuel. The chancellor announced a fuel allowance for mature citizens. However, such an allowance had to be compensated by other users of the resource. This announcement actually contributed to the rising fuel costs. Besides that, the chancellor also announced that polluting vehicles would have to pay up higher road taxes than their â??green’ counterparts. This would have been a way to offset the allowance given to senior citizens.

However, the chancellor asserted that the measures would be implemented in the month of October. This is already starting to cause tax contributors and may continue to do so in the year 2009. Perhaps the major reason for this delay was to appease economists and consumers who were likely to demonstrate over rising fuel costs on the streets. However, environmentalists are not very happy about the chancellor’s moves. They feel as though they have been short-changed by his delays.

The money market did into improve in any way. Before March, the UK was the country with the highest inflation rate in G7. As if that is not enough, the country also has an extremely high budget deficit. Many analysts assert that the chancellor expressed optimism for the future of the country yet the rate of borrowing within the UK did not give him reasons to be optimistic. This is still the case presently. The latter results could have been heightened by the fact that the budget was extremely tight. Almost all the finances were allocated somewhere. The overall result was that there were no savings or available finances to dispose off. (Meader, 2008)

The overall predictions about the economy within the budget speech also came true. The UK is operating within a volatile global market where the economy outside UK is negative. The same has affected the UK too. This is also likely to continue into the next year. However, even that pessimism was still not up to per with the current reality. Chancellor Darling announced that the UK economy would increase by between one point eight and two point two percent. This level has still not been achieved today as borrowing levels have exceeded predictions made earlier.

Overly, the budgetary effect seemed to have been offset. This is because the Chancellor was announcing the budget against the following issues;

A global credit crisis
Public finances that were tight
A slow domestic economy

The Chancellor was faced with the option of cutting down taxes thus promoting growth or he could have increased taxes and promoted public financing. Each measure would have totally different effects; the former would have caused a lot of discrepancy from financial market stakeholders as it would be detrimental to that sector. Additionally, the latter measure would have derailed the economic process. What the Chancellor decided to do was to reduce taxes in certain areas and increase them in other areas thus neutralising either measures. The issue of child poverty is currently being addressed and will continue to be addressed in the subsequent years. To offset those, costs, now fuel and alcohol costs have gone up. The overall effect of all this currently is a lower revenue base by the United Kingdom’s government. (NIESR, 2008)

Income growth is still low owing to the latter mentioned factors. Besides this, the country is still grappling with the depression of the housing market. This means that consumption rates in the housing sector are still below par. This is backed by the fact that the country and the international arena are still dealing with the credit crisis.

Whether the budget has brought the UK closer to a single currency

The budget announcement was conducted against a background of global fluctuations. The European has been grappling with increases in food prices and fluctuating fuel prices too. This rough background was not very conducive for the announcement of the budget speech given the fact that the Union was under high inflationary pressures.

It is against this inflationary background that analysts assert that the economy has not been doing as well as it should have been doing. However, this does no undermine the fact that the Euro has been relatively stable. Some of the explanations made by various stakeholders indicate that the euro is quite resilient. This is because the euro zone is relatively favourable. Employment rates this year have been relatively stable and slightly positive. The amount of demand for Euro exports is high, consequently, respective EU countries are given lot of space to contrive. (Elekdag and Lall, 2008)

The budget speech did not incorporate some of the macro-economic issues plaguing the EU. This means that the UK still has to deal with those issues on their own. As of June 2008, inflationary levels in EU had risen by a whopping three point seven percent. Such inflationary rates have exceeded any other levels anticipated. The latter inflationary levels have been felt mostly in the fuel and food sectors. It should be noted that these results do not encourage investments and growth within the EU. Therefore, the move towards a single currency has not yet shown any substantial improvements.

Other points of interest

The issue of taxation has been hotly discussed both before and after the budget speech. This came as a result of the Chancellor’s announcement that the country has a stable tax regime. However, one cannot help but notice the finalisation and anti-avoidance steps laid out in the budget. Corporate taxes have generated particular interest here owing to the fact that the chancellor announced a reduction of the prior twenty eight percent taxation taxes. Besides that, the manner of taxing multinational corporations has come under severe criticism after the budget. These companies are forced to pay higher taxes in order to remain in business after the budget. This announcement has started discouraging some potential inventors who may be interested in establishing multinationals within the UK. A large percentage of them are now looking for other countries that have friendlier tax rates. This severely affects UK’s image as one of the hubs for international corporations. (Camus, 2008)

Employees and employers have also been affected by the March speech and they will continue to be affected. The speech did not lay much emphasis on labour issues, instead more focus was on other areas such as fuel. However, the budget has affected some entrepreneurs who run Enterprise management schemes. The Chancellor announced that they would get an increase on the amount of grants available to them, prior to the speech, they were entitled to a maximum of one hundred thousand. However, now they are entitled to a maximum of one hundred and twenty thousand. This has encouraged employers to consider this scheme as an option. Besides the latter, the chancellor also talked about domicile and residence changes. This caused greater problems for both employers and employers who are no longer entitled to remittances after calculating their tax levels. (KPMG, 2008)

Conclusion

The March 2008 budget speech was read against a background of low economic performance within the UK. Consequently, the Chancellor was in a dilemma of either increasing or decreasing taxes. His decisions have affected the money markets because credit pressures have not demonstrated positive results yet. Besides that supply and demand for specific commodities such as fuel and alcohol have also been affected.

Reference

British Retail Consortium (2008): Retail Sales Monitor; British Retail Consortium report, no 49, 29th June

Camus, T. (2008): Publishing productivity measures; Labour & Economic Market Review, pp. 19â??211, 7

Elekdag, T. and Lall, T. (2008): Global Growth Estimates Trimmed After Revisions; IMF Report

Elmeskov, J. (2008): Economic Outlook Organisation for Economic Co-operation and Development Report; No. 82. December

KPMG (2008): Labour Market Outlook; London, CIPD report, No. 25

Meader, R., (2008): Revisions to quarterly GDP growth and its components; Economic & Labour & Economic Review pp. 58â??65, (11), 1

NIESR (2008): National Statistics, Consumer Price Indices; Labour & Economic Review Review. 1,(8), pp. 28â??36

help
its for my economics a-level
i need to include:-
inflation
employment
pound and dollar
target rate of inflation
and interest rates!

thanks

Do you want to know what is going to happen in the UK property market in 2008?

This UK property predictions article endeavors to give you an insight into what is potentially in store for property investors and homeowners in 2008.

Firstly let’s take a look at what happened in 2007 and the early part of 2008.

The debacle of what happen in the subprime mortgage crisis sent a shock wave through the financial World. There were many causalities, probably the most notable to date in the UK is Northern Rock.

Any business that relies heavily on debt and borrowed money has been hit hard. Banks and financial institutions are tightening the purse strings and property investors are feeling the squeeze and many are nervously looking at other ways to reduce the risks in their portfolio. Investors are particularly nervous if they are coming to the end of any fixed term mortgage agreements.

There is a good chance new mortgage rates will not be as favourable, hence potentially taking thousands of pounds out of the investors pocket.

Are we on the road to another recession?

Many people are looking at the property market crash of the 1990′s and are wondering if we are heading down the same route now.

The bottom line is that there is always a chance we could be going down that same path; however, the likelihood of this happening today is currently very slim. The reason being that when we look at the property market of the 1990′s compared to now, there are two big contributing factors that aided the crash that aren’t present today, these are:

1. Unemployment was sharply on the rise.

2. At their peak, interest rates were almost 15%

How is capital growth going to be affected this year?

All indication are that property prices this year will be much flatter than they have been for a long time. Indeed we are beginning to see sequential months of the average property prices in the UK actually going down.

However, locations such as Scotland and London are still bucking this trend. For short-term capital growth there are no real safe bets at the moment, but the safest of what is on offer tends to be in Scotland and down south in places like London.

Nonetheless, there are still location in the UK that are potentially undervalued and should still see a slow but steady price increase this year.

What are the facts?

While the media is predicting negative equity and zero percent price rises this year, the truth is nobody really knows what the future holds.

However, when it comes to UK property predictions, history does prove one thing. It proves time and time again that the media hasn’t got a clue and is often wrong. Their job is to sell newspapers and get people to watch their TV program and often the most profitable way to do this is by selling doom and gloom.

At the heart of the UK property market is the basic law of supply and demand. So, while demand far out strips supply then we can confidently predict that long term prices will increase. There are other economic factors that have to be taken into consideration, but as a general rule, this law normally holds true. However, that is not to say that in the short term they won’t remain stagnant or even go backwards.

The Good News.

The bank of England has recently announced it is pumping 50 billion pounds into the financial sector to try and revitalise the mortgage market. This is an extremely proactive and unprecedented measure to try and keep the UK economy as stable as possible.

Now, it may take several months for property buyers to feel the benefits of the money, but long term it should help to ensure the economy does not end up in the same mess as it did in the 1990′s.

The Conclusion.

Even though 2008 is likely to be a volatile year for property owners, for the astute investor who has a big cash reserve and knows where to locate the undervalued properties, because of less competition from other investors who are trying to sit out the current uncertainty in the market, this year could prove to be one of their most profitable ever.