United Kingdom - The Land of Fish and Chips

United Kingdom – The Land of Fish and Chips

Fast Facts

· 2nd Biggest Economy in Europe
· No restrictions on foreign ownership when buying property.
· Capital: London
· Population: 60 million
· Currency: British Pound (£)

Economic Overview

‘Oi !!.......you there, Wha’ fish you wan wiff them chips, then? I aint sellin’ no chips with no fish, innit’…..

And thus our adventure with the United Kingdom and all its peculiarities get off to a good start. But apart from the adventure, experience and ‘Greener Pastures Syndrome’, what makes this mud island one of the best places, to start your property empire?

The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK), is a sovereign island country located off the north western coast of continental Europe. The UK is a union of four constituent countries & is governed by a parliamentary system with its seat of government in London, & is a constitutional monarchy with Queen Elizabeth II as the head of state.

The UK is the fifth largest economy in the world & is one of the world's most globalised countries with London being the major financial centre of the world, in front of New York City, Hong Kong and Singapore.

In 2008, a flat in central London sold for £115m, which is believed to be the most expensive apartment the world. (Crazy money if you ask me!) That aside, UK house prices are slowing down & the long-lasting property boom seems over. UK house prices fell by 2.5% in March 2008 which is also the biggest monthly decline since September 1992. To show you what this means in the big scheme of things, have a look at the graph:

As you can see, the house price boom which started in early 1997 has now returned to those levels, and the current future sentiment is anyone’s guess. Mortgage lenders have greatly reduced the amount of loans they are prepared to make & it was recorded that lending to first-time buyers was at its lowest since early 1975.

100% mortgage loans are now no longer offered & borrowers looking for new mortgages are being thrown into complete chaos, as deals they have agreed with their broker, disappear from the market just hours before applications were to be signed. (This also happened to me !!)

So, with all these doom and gloom predictions, will we if ever, return to a hint of normalcy?

Property Market Review

The UK property market is currently in decline thanks largely to the phenomenon called the ‘Credit Crunch’? (Ever heard of it?)

Definition: A credit crunch is a sudden reduction in the general availability of loans, or a sudden increase in the cost of obtaining loans from commercial banks. So, why the ‘sudden reduction in giving out loans? Show us why in Graphs they cry !!

Have a look at the affordability of property prices by the above graph which is the ratio between house prices and earnings. House prices are now 7.0 times earnings in London, 5.7 times in the South West, 4.6 times in the Midlands, 4.5 times in Yorkshire and Humber, and 4.0 times in Scotland.

This means that UK house prices are currently more overvalued now than they have ever been !! (And if I was a bank, I’d also reduce funding until affordability returns to some vestige of normality)

So, what about the ‘upside’? …….(The UPSIDE??!! Are you kidding me??!!)

Apart from the doom-and-gloom scenario as discussed, there are still ‘pockets of light’. Rental incomes have increased at an average of 16.7% over the past year & London yields are showing a very healthy 5.7% .

A major contributor to this yield is immigration which is not only featured in London as many may think. Across the country, the average proportion of properties taken by immigrants is 20% as the UK continues to attract immigrants due to job opportunities (No, this isn’t only us Saffers !!) In addition, the economy remains strong with retail sales in the year to February rose by a stronger-than-expected 5.5 %.

Furthermore, UK house prices have been continually on the rise since 1995. From late 1995 to 2008, average UK house prices have risen from £50,930 to £179,363.This is an overwhelming 252% increase !!

Also, UK house-building has largely failed to respond to booming house prices for the past decade, largely because of building regulations. Increases in population, immigration, and a decrease in unemployment, have all added to the demand for housing as have changes in household sizes.

The Barker Review (HM Treasury), concluded that to reduce the trend in real price inflation to 1.8%, the rate of new home building would have to increase by around 70,000 homes per annum to around 195,000 per annum. Government figures show that homebuilding stagnated at 148,000 new units annually between 1989 and 2005.

In 2006, 180,000 new homes were built which is still low compared to 425,000 units in 1968……..

Conclusion

So forget the credit crunch, affordability & high interest rates, because as long as the UK can maintain its demand for a skilled worforce, the economy will march on unhindered through the storm.