United Kingdom

‘Oh, to be in England now that April’s there…’ wrote Robert Browning in Italy. Like the 19th century poet, many British expatriates reminisce about their homeland, especially in springtime. Not just in thought, but in deed, too, often returning with a property purchase in mind. But it is not only the Brits, plenty of foreign nationals feel the same allure (though perhaps less seasonally).

“The UK property market is massively supported by foreign investors,” says Liam Bailey, head of residential research at Knight Frank. People from around the world are drawn to the UK market throughout the year. But whilst property markets across the globe, and more particularly those in Europe, have strengthened over the past year – with European house prices, transactions, mortgages and construction showing strong growth, [see Professor Michael Ball, European Housing Review 2005 Royal Institute of Chartered Surveyors (RICS)] – the UK market presents a more varied picture. Take prices, transactions, mortgages and construction as four prime market indicators.

Market Indicators

Prices Chief economist Martin Ellis at the Halifax says: “The picture on a month-to-month basis remains mixed with four rises and four falls in the past eight months. Overall, however, there has been virtually no change in UK house prices since last September.” This marks an exceptional slowdown when you consider that the average house price rose more than 35 times since 1970 from UK£4,874 to UK£172,788 in 2004.

Mr. Bailey suggests that the period of double digit price inflation is now behind us. Regarding the UK mainstream residential market, he says: “After last year’s 12 to 13 per cent growth, 2005 will be the first year of less than a 10 per cent monthly market forecast.”

Transactions A different picture emerges from residential property transactions. Following a decline during the second half of 2004, for example, Halifax Estate Agents have seen an upturn in sales agreed since the start of this year. Also the latest monthly RICS survey shows that surveyors saw the first back-to-back increases in sales agreed in the first two months of 2005 since last spring. According to RICS, over recent months sound economic conditions and high consumer confidence have supported a stabilisation in housing demand.

But the transactions picture is not all rosy says Knight Frank’s Mr. Bailey, who expresses a worry about volume. The volume upswing begun in 1995 levelled off in 2001 and over the last nine months volumes are quite sharply down, fuelled largely by a major shift in who is buying. “First time buyers represented 40 per cent of the market until the late 1990s, but have progressively fallen to 27 per cent today,” he explains. “If first time buyers stay out of the market, chains do not get completed.” Mr. Bailey cites the example of those who bought small three bedroom houses for UK£200,000 who now want to upgrade to larger four bedroom houses, but find an absence of first time buyers who in the past would have readily bought these properties.

Mr. Bailey says the first time buyer has been replaced by the investor, more specifically by the buy-to-let investor. He remarks: “The investment market has changed the way the whole market acts, and while the investment sector used to be niche, it no longer is.”

Mortgages As much as prices and transactions present a varied picture, so too, do mortgages. On the one hand, following a sharp drop in the second half of 2004, the Bank of England shows a modest improvement in the number of loans approved for house purchases in February 2005, which was the highest level for four months. And the British Bankers’ Association data indicates that although February figures are 35 per cent less than home loans recorded for the same month in 2004, from January 2005 to February they were up nearly 14,000.

On the other hand, Nationwide economist Alex Bannister warns that mortgage payments expressed as a proportion of take-home pay have been increasing across the UK and especially in London. “Five interest rate rises have increased mortgage payments from 24 per cent to 30 per cent as a proportion of take home pay.”

Construction Finally, when it comes to construction as a major market indicator, the overall construction industry continues to show growth according to research by RICS. This is led by the commercial sector. Residential housing is a different matter. A survey by the Chartered Institute of Purchasing & Supply reports that in March, for the first time in six years, the construction of new British homes has fallen. To many observers, this is an indication that Britain’s housing boom has cooled.

Despite a rather mixed picture from the perspective of major market indicators, most analysts remain upbeat about the market in general. Whilst a slowdown is expected in the build up to the general election, the economic fundamentals remain sound. “Up a bit, down a bit, win a bit, lose a bit,” muses Knight Frank’s Mr. Bailey. “There is still a low interest rate environment with rising employment and general consumer confidence.” The property market seems to be doing surprising well.

Property Snapshot

When it comes to property, value for money is not found in urban centres and especially not in London. Take, for instance, a spacious three bedroom/two reception room apartment in Kensington for UK£1.65m and compare it to a countryside property in Wiltshire dating back to the 17th century, which includes six bedrooms, three receptions, study, billiards room, separate cottage, two barns and a swimming pool all on 2 hectares of land for UK£1.75m. Both properties from Knight Frank.

Relative value speaks for itself when you consider Hampton Court, a massive historic Herefordshire castle dating from the 15th century – including banqueting hall, ballroom, 26 bedrooms, six cottages, spectacular grounds – with nearly 1,000 acres of land all for UK£10m, from Knight Frank. Or perhaps less of a deal, relatively speaking, is what is billed as the UK’s most expensive country property. Updown Court – a high tech 21st century stately home – includes 103 rooms, five swimming pools, a heated marble driveway, helipad and underground garaging for eight limousines. All for ‘in excess of’ UK£70m from Hamptons International.

Moving away from the upper echelons of the residential market, the apartment sector is expanding, often with innovative marketing enticements. Linden Homes which has apartment and housing developments throughout the south east of England favours on-site shops and supermarkets, alongside health clubs and gyms, or even an animal hospital. In Reigate, Silk Quarter is a typical Linden project with 27 apartments and houses priced from £245,000.

Meanwhile in urban centres, high rise apartments and mixed use towers increasingly dominate the skyline. With 27 stories, for instance, Ontario Tower at Ballymore’s New Providence Wharf in Docklands, is London’s tallest new build high rise tower. Buyer enticements include an optional range of concierge services from valet parking to maid and butler care. Under the scheme the annual service charge covers the basics with the extra concierge services available to all residents for an additional fee as and when used. The result, explains Ballymore, is a much lower annual service charge than is typical for London. One bedroom apartments cost from UK£287,000.

A huge expansion of high rise apartment construction is taking place in many city centres outside of London. Knight Frank who are well known for the top end London and country house sector are perhaps less known for city centre (and town) apartment developments throughout the UK.

For sale from Knight Frank in Manchester, for instance, is GN Tower Deansgate on 23 floors with 256 apartments, duplexes and penthouses. Units are priced in square feet, which commence below UK£300 per square foot. Or another project is The Orion Building in Birmingham, developed by Crosby Homes with contemporary interiors by international designer John Rocha. On 25 floors with 349 apartments, prices start at £199,950. Completion expected in the summer of 2006.

Finally…

If you take the point made by the Halifax seriously – the UK’s biggest mortgage lender – that over the next 12 months prices will fall on average by 2 per cent, perhaps now is a good time to look more closely at UK properties, and to be poetic… ‘especially now that spring is here.’

CONTACTS:

• Ballymore
  www.n-p-w.co.uk
• Bank of England
  www.bankofengland.co.uk
• Halifax
  www.halifax.co.uk
• Knight Frank
  www.knightfrank.com
• Hamptons International
  www.hamptons.co.uk
• Linden Homes
  www.lindenhomes.co.uk
• Nationwide
  www.nationwide.co.uk
• Royal Institute of Chartered Surveyors
  www.rics.org