The property market in Northern Ireland have rose at an annual rate of 6%, in the third quarter of 2017. The upward trend was also reflected in the quarterly figures, which showed an increase of 3% between quarter two and quarter three.
The house price index is now 19% higher than in the first quarter of 2015. These figures are from the NI Residential Property Price Index, which analyses almost all sales, including cash deals. The average standardised price, across all property types, was £132,169.
New builds – Derry City and Strabane and Causeway Coast and Glens saw the biggest annual rise in the third quarter, with prices up by 9%. The smallest annual rise was in Belfast, where prices were up by 4%. The number of deals completed in the third quarter was 5,453.
Ulster Bank economist Richard Ramsey said, “there is a big difference in the price growth of new builds and existing houses.”
The price of new builds grew at an annual rate of 18.5% while the prices for existing resold houses were up 6% year-on-year. Meanwhile other official figures show the number of new housing ‘starts’ in Northern Ireland increased in the third quarter of this year.
A housing start refers to the beginning of work on a residential property, such as the laying of foundations. The total number of starts for April – June 2017 was 2,444, an increase of 19% on the same quarter in 2016.
According to economic growth expert, Michael Bloomberg, “Brexit won’t affect the prominent business role London plays with other European countries, however it will slow down its overall economic growth.”
Even the former New York mayor previously claimed Brexit was the “single stupidest thing any country has ever done.” But he has now said Brexit will not have a major impact on the British capital because of its financial attractiveness.
Also adding, “London is always going to be the financial centre of Europe for the foreseeable future… It has the things the finance industry needs: it is English speaking, it is family-friendly, it has a lot of cultures so you can attract those people here.”
The billionaire’s company recently opened its new £1billion headquarters in London, where 4,000 employees will work with room for an additional 4,000. London is to home to global financial services and to more banks than any other financial centre worldwide.
In October, the Bank of England decided to raise interest rates for the first time in a decade – which prompted an unusual market reaction last week, with both the value of the pound falling sharply.
Adam Chester, Head of Economics at Lloyds Bank Commercial Banking, said “The sterling was noticeably softer, at one stage falling around two cents against both the US dollar and euro, towards $1.30 and below €1.12, retrospectively.”
Chester also added, “The unusual reaction to last month’s events stemmed, in part, from the fact that the Bank of England’s decision to raise interest rates by a quarter point had been so well flagged… While there appears to have been an element of ‘buy the rumour, sell the fact’ following the announcement, this doesn’t explain the extent of the reaction, which we believe is overdone. This seems primarily down to the Bank of England’s decision to omit a key line in the minutes that accompany the announcement.”
The economic projections that underpinned the Bank of England’s latest decision were conditioned on a market profile for interest rates that embodied two more quarter-point increases in UK Bank Rate, to one per cent, over the next three years – a view that we broadly share.
Admittedly, that would represent a very modest tightening, but it would be in line with what the market had been expecting prior to the announcement. Arguably, therefore, the reaction should have been limited. Instead, by the end of the week, money market rates had fallen to such an extent that only one more rate rise was being priced in by late 2020. We believe the markets and trends have misinterpreted the Bank’s signal.
If anything, we believe there was a stronger argument for bond yields and the value of the pound to have risen following the announcement, as even allowing for two more rate rises, the Bank still expects consumer price inflation to be above its two per cent target in three years’ time.
So, where do rates go from here? The answer is, as with most issues in economics, it depends. The degree of uncertainty surrounding the domestic economic outlook makes accurately forecasting UK interest rates over the coming years particularly difficult. This is compounded by the additional uncertainty of how the Bank of England will respond.
As evidenced again in last week’s projections, it is clear that the UK central bank is prepared to accept a prolonged period of above-target inflation as a price worth paying to ease the pressure on the economy. It is willing to do so due to the potential risks surrounding Brexit. As long as the Bank of England believes the economy has some spare capacity, it is likely to continue to attach disproportionate weight to supporting growth.
But it is doubtful that much spare capacity now remains. Unemployment is, after all, at a 42-year low of just 4.3 per cent and below most estimates of its natural rate.
According to the Bank of England – 75,000 jobs could be cut in the financial industries, following the UK’s departure from the EU.
Their senior figures are a ‘reasonable scenario, especially if there’s no specific United Kingdom and European Union financial services deal.
However, this figure could in fact change, dependant on the UK’s post Brexit trading deal – but experts do state that there will be “substantial job losses.”
The Bank of England has asked banks and other financial institutions, such as hedge funds, to provide it with contingency plans in the event of Britain trading with the EU under World Trade Organization rules – what some have described as “a hard Brexit.“
This would mean banks based in the United Kingdom would loose special ‘passporting’ rights to operate across the European Union.
According to Savills’ 2016 research – more than half of the money put towards a deposit for first-time buyers during 2016 was provided by the government’s Help to Buy scheme or the bank of Mum and Dad. New research reveals, that in 2016, 51 per cent of the £10billion put towards down payments on ‘starter homes’ was sourced by these two crucial sources of support to young buyers.
The vast majority of financial help came from parents: across the UK, 150,000 first-time buyers received parental help to raise the deposit they needed to get a mortgage, with the overall value of this assistance worth £3.45 billion. This is two and a half times higher than the amount provided by parents 10 years ago, and, according to Savills, the model looks set to continue.
So, why are first-time buyers alternatively sourcing deposits?
Rising house prices – Well firstly, property prices in the capital have risen by 78% over the past decade – an increase that has most benefited those at the top of the housing ladder.
With house prices high and wages stagnant – figures from the Office for National Statistics show wages in London have fallen in real terms since 2007 — the impact on housing affordability for first-time buyers has been huge!
As many parents are still living in the family home, while their own children are unable to afford a home of their own, many are choosing to release equity by downsizing to a more practical property in order to help their offspring on to the housing ladder.
Tighter lending criteria – While house prices have been rising, tighter restrictions on how much banks are willing to lend have also come into force. Savills data shows that the percentage of lending at over 90% loan-to-value has dropped significantly in the past 10 years, from 14.2% in 2007 to just 3.9% in 2017.
The FCA (Financial Conduct Authority) has also introduced stricter mortgage lending regulations across the market to ensure buyers will still afford repayments in the event of an interest rate hike. Thus meaning first-time buyers must raise ever bigger deposits in order to plug the gap between London house prices and average income.
Soaring deposits – The average first-time buyer deposit in London rose from £23,600 in 2007 to £100,400 this year, an eye-watering increase of 325 per cent in 10 years. By comparison, the income of the average first-time buyer has gone up just 27 per cent in that time, to £66,900.
London Finance firms are preparing for the worst, but hoping for the best when it comes to Brexit. As they don’t know what the worst-case scenario is.
Though most finance firms agree that jobs will have to move in a worst case scenario – plans submitted by banks to the UK regulator show institutions have different ideas of what the worst outcome from Brexit could be.
Whatever the worst outcome is, it will require an absurd amount of capital to implement contingency plans post-Brexit, across the Britain’s financial landscape. Business leaders have repeatedly called for more clarity from the government over what Brexit will look like, warning that uncertainty will force many to relocate jobs out of the UK.
The AFME (Association of Financial Markets in Europe) estimated in June that a ‘hard’ Brexit could cost UK banks up to €15 billion (£13.1 billion) and add an estimated €40 billion (£35 billion to tier one capital requirements.
Firms operating across both the EU and UK post-Brexit have many regulatory options — a branch could be converted to a subsidiary or a headquarters moved to a new location, for example — which creates a headache for regulators and firms alike.
Banks that are planning a comprehensive division of work between offices in London and the EU need to transplant and split up their ecosystem established over the years. That means IT infrastructure, knowledge, process, people, and a lot of other things.