A leading north-east property expert has dismissed any suggestion the area may see a major slump in house prices this year.
Industry watchers have claimed the value of UK homes could nose-dive by as much as 12% due to combination of adverse factors, such as rising mortgage rates, the cost-of-living crisis and an expected recession.
These views have frequently made news, causing alarm among homeowners.
Mortgage crisis looming
Adding further uncertainty in the property market is a recent report that more than 750,000 UK households are at risk of defaulting on their mortgages over the next two years.
Britain’s financial regulator warned soaring borrowing costs could make payments unaffordable.
The Financial Conduct Authority said more than 200,000 households had already fallen behind on payments by the end of June 2022.
A further 570,000 are “at risk of payment shortfall” within the next two years, it added.
North-east bubble
But Alan Cumming, estate agency director at law firm Aberdein Considine, told The Press and Journal north-east homeowners should not be alarmed.
The local property sector does not operate in tandem with the rest of the UK, due to the area’s strong connection – formed over several decades – to the international energy industry, he said.
He added: “The health of the oil business has always had a direct impact on the value of properties in Aberdeen and its suburbs.
“When oil goes through a boom phase, then demand for homes surges. But a downturn can lead to thousands of energy workers leaving the city and hundreds of homes coming on the market literally overnight.
“In the middle of the last decade the north-east homes sector was badly hit by a downturn in the oil business.
“That led to a big drop in demand for properties in our area from energy workers – and we saw property prices falling or static for several years.
“They only began to really recover last year – and still in a modest way.
“In contrast, home prices have been roaring ahead for years in many other parts of Britain.”
When oil goes through a boom phase, then demand for homes surges. But a downturn can lead to thousands of energy workers leaving the city and hundreds of homes coming on the market literally overnight.”
Alan Cumming, estate agency director, Aberdein Considine.
He continued: “Quite frankly, property values in numerous areas of the country were unsustainable and due for a correction.
“You have to remember that for every seller that benefits from their house value rising, there is a first-time buyer unable to get on the ladder or a second-stepper unable to secure their forever family property.
“Homes in the north-east have been fairly priced now for a number of years, so we are not going to find ourselves in the same difficult position as other parts of Britain where their housing stock is significantly overpriced.”
According to Mr Cumming, it is impossible to predict with any certainty where north-east properties will be value-wise by the end of 2023, due to so many different factors playing a part in the outcome.
But he added: “My gut instinct is that prices a year from now will be similar to where they started this year. I think the worst-case scenario would be a very small drop.
“Some other parts of Scotland have further to fall after enjoying an exceptionally buoyant-market for the past 10 years.”
Market activity in the Aberdeen area eased slightly earlier than usual at the end of last year, which Mr Cumming said was understandable given a full return to festive celebrations.
He added: “It is important to remind ourselves that in December 2021 we were still living with Covid restrictions.”
Hopes for busy spring
Aberdein Considine is expecting a busy spring in the north-east homes market.
Mr Cumming said: “There is no evidence to suggest a housing market crash on the horizon here.
“The oil and gas and renewables markets are improving, and anyone you talk to locally working in those sectors are generally optimistic.
“Our property teams across the north-east are reporting a busy start to the year, with a decent level of buyer inquiries.
“There is a shortage of good-quality three, four and five-bedroom homes across the whole region, which is not unusual for this time of year.”
There are not enough family properties coming onto the market to meet demand in towns within easy reach of Aberdeen, such as Banchory and Westhill, Mr Cumming said.
He expects an uptick in the family homes market “as we head towards spring”.
The oil & gas and renewables markets are improving, and anyone you talk to locally working in those sectors are generally optimistic.”
Housebuilding giant Barratt said recently it had seen a “marked slowdown” in the UK market over the past six months.
Barratt chief executive David Thomas added the market had been hit by “political and economic uncertainty”, as well as rising mortgage rates – making homes less affordable.
Mortgage costs surged after the UK Government’s mini-Budget in September, peaking at 6.65% for a two-year deal.
UK outlook ‘uncertain’
Barratt, the UK’s biggest housebuilder, is approving fewer new development projects and pausing hiring.
The company warned the outlook for the second half of its current trading year was “uncertain”.
Buyer confidence and the “availability and competitive pricing of mortgages” are “critical to the health of the UK housing market in the coming months”, the firm added.
Scottish Building Federation (SBF) managing director Vaughan Hart told the P&J the north-east had seen major projects – such as the Aberdeen city bypass road, regeneration projects in Dundee and extensive private new build-housing on the outskirts of both cities and other areas in-between – over the past decade or so.
“These have undoubtedly been good news for the construction and building sectors in the area,” he added.
But increased inflation has put pressure on specialist companies focused on affordable housing, with much tighter margins, he said.
Action needed to deliver more affordable homes
Mr Hart continued: “Some projects have already seen costs increase dramatically – leading to delays or cancellations.
“SBF has been campaigning on behalf of its members in the north-east and elsewhere to ensure there is sufficient flexibility in contracts to make sure necessary affordable homes can still be delivered at value to the public purse.
“Failure to do this will have obvious impacts for local councils – fewer affordable homes place increased strain on costly acute housing services at time when revenue budgets are under extreme pressure.
“Rigidity in the short-term might save cash, but it will store-up problems for the longer-term on housing, skills and budgets – not least because there will be far fewer affordable homes constructed.
“These longer-term effects would include a reduction in apprentices being taken on or trained.”
And with construction and building among the top employers in the north-east, there may also be a damaging medium-term economic hit, the SBF MD said.
There are still reasons for optimism among SBF members in Aberdeen and surrounding areas, despite the concerns about the pressure on public funding, he said.
He added: “With families perhaps less likely to take larger financial risks by moving home, many are concentrating on improving existing properties.
“Whether this is adding insultation or energy-saving measures to help with rising bills, expanding a home, fixing roofing or upgrading bathrooms or kitchens, it is often smaller companies that carry out this work.
“In the bigger picture of the industry, this might not be seen to have much impact.
“But it protects these firms and ensures they remain viable, keeping skills and experience alive.
Fewer affordable homes place increased strain on costly acute housing services at time when revenue budgets are under extreme pressure.”
Vaughan Hart, chief executive, Scottish Building Federation.
“When larger projects in the region accelerate again, these companies should be ideally placed to take advantage and win contracts that will maximise local economic benefit.”
Mr Vaughan also spoke about opportunities from the evolution of housebuilding in the north-east.
He said: “This may create new markets for construction and building.
“The transition to a greener economy presents opportunities, such as new construction methods and new materials, for local companies to reduce the environmental impact of any project.”
40 years of Halifax house price index
The Halifax House Price Index has marked its 40th birthday by highlighting how UK property values have soared over the decades.
In January 1983 the average house cost £26,188 and the Bank of England’s base interest rate was 11%.
Since then, the typical property price has grown 974% to £281,272 and the interest rate now sits at 3.5%.
Prices peaked last August
While the cost of buying a home was at its lowest when the index started, prices peaked at £293,992 in August 2022.
London was the most expensive place to buy a home in early 1983, as it is today.
Properties in the capital were an average £36,056 in the first three months of that year, compared to £541,239 now.
In Scotland the typical home in the first quarter of 1983 cost £26,411, compared with £200,166 today.
Conversation