The housing market in Wales has changed quite dramatically over the last 10 years, with many factors contributing to its shifting shape.
Wales has seen significant house price inflation in the last decade, large scale property development and huge sums of money being invested into regenerating some target areas of the country, particularly in the capital city of Cardiff.
However, the current credit squeeze has caused many commentators to pontificate about the likely effects on various sections of the UK mortgage market, including Wales and Cardiff.
The last decade
According to the Council of Mortgage Lenders (CML) factsheet on the Welsh housing and mortgage markets, house price inflation in Wales has been higher than the UK average over the last six years and during 2004 and 2005 it was double the UK average. The house price website mouseprice.com has stated that the rise in house prices in Wales from 2000 to 2006 was second only to Yorkshire and the Humber.
Last year the number of loans for house purchases in Wales reached 48,100, which was 16 per cent up on 2005, but only the third highest figure for Wales in the last decade. However, house price inflation in 2006 was 7.3 per cent, still slightly above the UK average of 6.3 per cent.
The CML statistics show that there have been some significant upward movements to the price of house purchases in Wales over the last 10 years and the number of loans for purchases has closely reflected activity in the rest of the UK market, which indicates that the demand for housing in Wales is strong.
First-time buyers
As house prices moved steadily upwards between 1996 and 2001 so did the number of first-time buyers, reaching an all-time high of just over 30,000 in 2001. However, this trend has reversed dramatically – house prices have continued to increase, at a greater rate since 2001, but the number of first-time buyers entering the market has declined and reached a low of 15,000 in 2005.
In 2006 there was a small increase in the number of first-time buyers, but the figures indicate that first-time buyers in Wales have been having similar difficulties getting onto the property ladder as in other parts of the UK.
Interestingly, the average wage of a first-time buyer in Wales in 2006 was just over £30,000 which is almost double what it was a decade ago. However, first-time buyers are now having to borrower a much greater amount in comparison to their income to buy their first home. In 1996 the average income multiple was 2.30, but in 2006 it was 3.20.
Property development
The city of Cardiff, and particularly Cardiff Bay, has benefited from a huge amount of investment over the last decade, resulting in prolific developments in both the residential and commercial property sectors.
The Cardiff Bay Development Corporation was established in April 1987 to regenerate the old docklands of Cardiff and Penarth as part of the British Governments Urban Development Programme. This regeneration has helped to boost the Welsh economy and the physical landscape of the capital of Wales has been completely transformed.
Cardiff Bay has altered beyond recognition. It is now Europe’s largest waterfront development offering restaurants, shops, boat tours, leisure facilities and many modern apartment complexes. It is also home to the newly constructed Wales Millennium Centre and the impressive Welsh Assembly building.
With the approach of the Ryder Cup being held at the Celtic Manor Resort in 2010, there are major plans in place for the city of Newport with over £300 million of new investment in shopping and commercial developments and significant numbers of new homes.
The Welsh Development Agency has also invested millions into the regeneration of the Swansea docks in South Wales.
The rental market and BTL
Cardiff, among other cities and towns in Wales, is a popular university destination providing further education to thousands of students, most of whom look to rent accommodation during term time. This has created a strong demand in the rental property sector with many parts of the city’s residential areas comprising of shared rental accommodation to cater for this section of the housing market.
The strong demand for rental property has also been driven by the general changes in social demographics experienced throughout the UK, such as the influx of immigrant workers, a more mobile workforce and people waiting longer before purchasing first homes.
It was recently reported that Wales is one of the few parts of the UK where it can be cheaper to rent than buy a property. Research last year by Abbey indicated that it was £61,155 cheaper to rent than buy in Wales for the average household over 25 years.
The research showed that in just 12 months the gap between renting and buying had risen from 6 per cent to 15 per cent due to rising house prices and interest rate increases. However, home owners do have a house at the end of the term and will benefit from any house price rises, increasing the value of their equity.
Demand for rental accommodation has driven growth in the buy-to-let (BTL) market in Wales, which is proving to be a popular place for people to invest in rental property.
According to Paragon’s BTL index in May this year, Wales was the best performing region in the UK with yields at 7.0 per cent. In October it showed that Wales has had stable yields of above 6 per cent for over a year – the third highest yields in the UK.
This steadiness in the BTL market in Wales indicates that it has been resilient to the recent credit squeeze and may benefit from a growing tenant demand, as potential house buyers delay purchasing a new home in the current financial environment.
Credit crunch
There has been much speculation recently among industry pundits concerning the effects of the current credit squeeze on the UK housing market. Many are predicting a slow down in house price growth and some go as far as saying that house prices will fall significantly.
It is difficult to predict accurately what will happen in the coming months as lenders are still adapting their product offerings to current market dynamics, and it is unclear what will happen to LIBOR rates and house prices in the short to medium term.
One thing is clear though – the cost of borrowing has increased over the last few months which is likely to have an effect on people seeking to take out residential mortgages.
Some commentators are predicting a fall in the Bank of England Base Rate early next year, and informed consumers may be waiting to see if this will result in better mortgage rates being offered in the marketplace before making a house purchase.
According to the Land Registry of England and Wales’ latest figures for the period up to the end of September 2007, Wales has seen house price growth of 7.6 per cent in the last year which is a healthy figure, but less than a number of other regions, namely Scotland, Greater London, Northern Ireland, South West, South East and East Anglia. The figure for the last quarter was just 4.6 per cent which does suggest that Wales is experiencing a slowdown in the rate of house price inflation during 2007.
The forecasting group Capital Economics has painted a bleak outlook for home owners in Wales, indicating that the Welsh housing market could be hit hardest by any downturn in the market.
Capital Economics predicts that house prices in Wales could fall by up to 6 per cent next year compared with just 1 per cent nationwide. A report by BBC Wales claimed that property repossessions in Wales were at their highest for eight years and that the five interest rate rises by the Bank of England were pushing borrowers to their limits.
It has also been suggested that the number of new apartment developments, particularly in Cardiff Bay, has led to market saturation with many flats in the area being left empty and developers unable to sell them at the desired profit margin.
In any time of uncertainty, some will forecast doom and gloom, just as some remain defiantly optimistic. Time will tell whether Wales is going to suffer to a greater degree than other region during a period of market instability. On a positive note it has been suggested that Welsh home owners would be less likely to suffer as much as those in London due to the relative stability of the Welsh economy compared to London’s volatile property market.
The housing market in Wales is diverse and has experienced exceptional property price increases over the last decade. Wales has benefited from significant regeneration investments which have boosted the economy and created new housing. Wales also has a buoyant BTL market fuelled by a high level of demand and good yields.
The Welsh housing market will be affected by the current credit squeeze, but it remains to be seen whether or not the impact will be significant.
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