South: Romans releases 2015 property market predictions

89% of Romans’ customers think that property values will rise in 2015. This is according to the results of a questionnaire completed by 505 of the Group's registered buyers, sellers, landlords and tenants.

From the frenetic conditions of the first half of 2014 the property market has settled into a much more balanced, and therefore sustainable, level of activity, says group managing director Peter Coles, who shares his house price predictions for the next 12 months.
Property market predictions for sellers

Sellers now need to be more mindful of the competition (other properties on the market for sale and sold) as buyers and surveyors, on behalf of lenders, are comparing prices and ensuring that properties aren’t being overpriced.

Therefore, speculative pricing is not advised; as it can not only delay the entire sales process but can often result in an even lower sales price than otherwise might have been achieved. This is due to the stigma associated with a property that has been on the market for a long time, or had its price reduced.

Property market predictions for buyers

There is more choice for buyers now and, although this means there’s less pressure to make an offer straight away, demand does remain strong, especially for quality property in desirable locations.

If you see something you like the chances are you won’t be alone in your interest, so we’re advising buyers to avoid any unnecessary prevarication or you will simply be pipped to the post by other buyers.

My house price predictions are that, unless a buyer has robust evidence that an asking price really is unrealistic, then to avoid missing out to a better offer I’d advise against quibbling too much, if at all.

House price predictions 2015

I expect property prices to increase locally by 5-10% during 2015. The upper end of the market is likely to see the lower increases with the smaller one and two-bedroom properties enjoying the bigger rises.  A lot of this demand will stem from first time buyers competing with investors.

First time buyers will continue to take advantage of the ongoing low interest rates and the government support schemes. Investors, on the other hand, will be looking forward to the April change in pension rules and looking for property investment opportunities, specifically smaller properties in desirable areas that offer excellent yields and good long-term capital growth.

With regards to the forthcoming election I don’t believe that this will materially impact the property market locally; it certainly hasn’t done on previous occasions as, after all, regardless of what the election outcome is, people will always need to move home and buy and sell property.”

2015 property investment opportunities for landlords

Peter Fuller, lettings managing director at Romans, suggests more people will turn to buy-to-let investment in 2015, as an alternative way of receiving a regular income:

“The availability of better buy-to-let mortgage deals and a continuing growth in values will see investors actively purchasing more property, increasing the amount of new property available to rent.

Legislation on pension funds will change in April 2015, allowing savers aged 55 and over to have the freedom to do as much or as little as they want with their pension, and be able to cash in any annuities that haven’t been performing as well as they had anticipated.

I expect a significant number of them to turn to buy-to-let property investment as an alternative way of providing a regular income, bolstering the private rental sector in the process. That being said, some landlords, who perhaps inherited property and became ‘accidental landlords,’ will still take advantage of recent house price increases and sell their property.

During 2014 I’ve noticed that more tenants are staying in properties for longer; encouraging for new landlords. In many cases this provides landlords with a stable second income and helps them make feasible plans for future investments.

Property market predictions for tenants

Tenant demand will remain consistent, with the gap between earnings and house prices continuing to widen. This will result in some tenants renting for longer as they are priced out of the market and unable to purchase property. Add to this the news that earnings are outperforming inflation and this should see rents rise by approximately 5%, similar to the increases in 2014.

Broadly speaking, we expect this to be in line or slightly below house price increase predictions, which will result in healthy equity growth and fairly consistent rental yields for landlords. With interest rates expected to remain low, this means that property in the local area will provide excellent short, medium and long-term returns for any investors.

Overall, I predict there will be improved levels of property available to rent during 2015, compared to 2014, but still not a huge amount of choice for tenants.”

Mortgage availability and interest rate predictions for 2015

Greg May, director of Romans Mortgage Services, comments on how the prolonged interest rates could mean it’s better to buy sooner rather than later:

“We are now familiar with the headline ‘Bank of England keeps interest rates at record low of 0.5%’. It’s been the story since March 2009, some 68 months ago.

But with this news comes a greater responsibility for the buyer.

In a survey by the Money Advice Service, 56% of people said that they did not have a plan for when interest rates do eventually rise despite 84% thinking that an increase would have an impact on their finances.

But right now, homeowners have been presented with an opportunity to obtain some extremely cheap mortgages as a result of the Bank of England’s decision to prolong the rate rise.

Why have interest rates lowered?

The new lower rates come as a result the UK’s low inflation levels, the stagnation of the eurozone and the slowing of the housing market in the UK.

The aftermath of the introduction of the Mortgage Market Review (MMR) also seems to have calmed as lenders begin to try and meet their yearly targets – hence the wave of lower rates – with some deals falling as low as 1.49%.

How could the buy-to-let sector be affected by the upcoming pension reform?

As a result of the older generation of the UK worrying over the cost of care and the meagerness of their pensions, the buy-to-let market is seeing something of an influx of older, retirement-age landlords looking for a way of maintaining income for their future.

78% of current landlords see their investment in buy-to-let properties as a pension, according to data collected by market researchers BDRC Continental. And, when changes to the pension system go ahead, that figure will begin to increase.

Under the proposed new pension system, from April 2015, over-55s will be able take separate lump sums when they retire and each withdrawal they make will be treated as income, with the amount of tax paid on it being dependent on how much other income they ‘earn’ that year – making it perfect for investing in a buy-to-let property.

Savers have always been able to take 25% of their pension in a tax-free lump sum but have then been guided into buying an annuity with the remainder of their savings. From April 2015, over-55s will be able to take smaller lump sums instead of one large one and each individual amount will be 25% tax-free.

Income from private rental properties reached record highs in the UK at the end of 2014, averaging £761 per month. Combine this with the shortage of property to fuel the increased demand that Help to Buy has brought and investment on property suddenly sounds like a completely viable option for the future.

Would a buy-to-let investment benefit me in the future?

Buy-to-let investments can provide a regular income via the excess rental income that the landlord receives after the mortgage has been paid.

Those with larger pension pots will be able to use the new rules to offset paying the 40% tax by drawing smaller sums out over a period of time.

For example, if you have a £200,000 pension pot and decide to take out a £50,000 sum each year for four years, you will receive 25% tax-free (£12,500) and will be liable for income tax on the remaining £37,500 each year only. So, instead of paying more than £50,000 in tax, you will pay around £22,000.

The private rented sector may well be the new solution to the pension gap and could be a viable long-term investment due to increased income security (when compared other types of investment, such as stocks) and longer average tenancies in the buy-to-let market.