2015 to be a year of rectification for UK property

2015 to be a year of rectification for UK property

The UK property market could show its real maturity and strength in 2015, according to latest predictions, that show the sector will manage to rectify itself throughout next year. 

In the past, fast price rises, such as those we have seen in 2014, would have left experts with fears that the property market would overheat and start to head towards a bubble. However, experts are now predicting that the market has enough power in itself to simply cool off for a period and allow the prices to drop to a more sustainable level.

For investors, price drops may not seem like good news in the short term, but in the grand scheme, a rectifying of prices that have risen at a rate too fast can only be good for security of their investment. 

It is thought that by the end of this year, prices will have climbed by an annual rate of 7.8 per cent. This would be more than double the 3.5 per cent national increase that was experienced in the previous calendar year. 

According to the Centre for Economics and Business Research (CEBR), this is the fastest single-year price rise since the financial downturn hit the property market in 2008. But the fact it has priced many young people out of the market means that there will be fewer buyers around next year, which should allow the market to settle again. 

The reason for this is largely brought about by the Mortgage Market Review, which introduced new affordability laws earlier this year. While in the past it would have potentially been the case that buyers would still be afforded more and more mortgages even as prices kept getting higher, the new regulations have meant that lenders have to assess far more stringently. 

This leads to fewer mortgages being given to people nationwide, allowing overpriced homes to fall in valuation to a more sustainable level as demand falls and takes competition for purchases with it, which is only a positive for the sector as a whole. 

"Affordability has become such an issue in the more expensive regions of the UK that buyers are starting to baulk at high prices. New mortgage rules, introduced in April, have also led to a slowdown in lending that will curb demand for property in the short term," said Scott Corfe, a director at the CEBR.

Another factor that could also come into play when it comes to making sure house prices are sustainable moving forward is the belief that the Bank of England is likely to increase interest rates in early 2015. This will make it more difficult for people to get mortgages, so should control the number of people making purchases and allow prices to soften and fall slightly throughout the year. 

"Although rises are expected to be very gradual, with rates remaining much lower than before the financial crisis, prospective buyers are likely to be startled by the first such increase, leading many to hold off from making purchases. This too will lead to lower prices," Mr Corfe added. 

Looking forward, this drop in prices should only be a short term issue that allows the market to flourish in years ahead. The CEBR report suggests that after a year of softening valuations, 2016 will see property prices start to climb once again.