There’s nothing like good news from the property market to warm the cockles of the heart of most kitchen or bathroom retailers and the recent price hike and increased selling activity has largely been presented as ‘good’ news, but is it good news for the kitchen or bathroom sector?
Self-assessed mortgages have gone the way of the Hula Hoop
The average price of a house in the UK stood at £250,000 in December 2013, official figures show.
This is not the time or blog to point out that ‘property wealth’ can only be cashed in if you quit the market or downsize big time. Otherwise, the money you have made on your home is going to be spent on buying your next home. And having a house worth over a quarter of a million quid is not going to put food on the kitchen table or petrol in the car.
(Taking of cars, did you know that the UK is now the second biggest market in the world for Ferrari cars? Me neither, but it shows that there is real money around in Britain or that we have more than our fair share of footballers, but I digress…)
The kitchen and bathroom refurbishment market has traditionally followed the highs and lows of the property market, but there could be changes afoot because today’s property market is a very different animal from what was the norm a few years ago.
Firstly, the property price spike is has largely been fuelled by rapid growth in London, where prices are increasing at more than double the UK average, according to the Office for National Statistics. Excluding London and the South East, UK house prices increased by 3.1 per cent in the 12 months to December 2013.
Secondly, much of today’s property market is being fed by either existing property owners or Buy-to-Let speculators looking for safer investment post the 2008 crash. Stephen Smith, director of mortgage club and housing at Legal & General, said the figures demonstrate how a “two-speed market” is now developing.
First-time buyers are being forced to pay more to get onto the property ladder. In December, the prices they paid were on average 7.4 per cent higher than 12 months previously and Mr Smith voiced concerns that households in London could soon find house buying unaffordable if current price increases continue.
Frankly none of this is very good for quality kitchen and bathroom refurbishment business as much of the property influenced growth in the past came from owners ‘doing up’ their homes with surplus money from a mortgage. Today’s private purchaser will be stretched just to get a mortgage that covers the purchase of a property. Self-assessed mortgages, 110% mortgages and mortgages based on what you might be earning in five years’ time have gone the way of the Hula Hoop and avocado bathroom suits.
This is not to deny that there is a feel-good factor abroad in the kitchen and bathroom business community at present and I fully expect to see a lot of very happy people at kbb Birmingham next month. Make hay while the sun shines by all means, but don’t ignore the possibility of there being a couple of dark clouds on the horizon either.
Dark cloud number one is that a property market priced so high that first-time buyers struggle to be part of the action cannot be a long-term bet. Solving this problem only has two solutions; wages increasing or property prices decreasing.
Dark cloud number two is that Government-backed schemes that help buyers get a toe-hold on the property ladder can only work while mortgage repayments are affordable. These are linked to the bank rate that is currently at a historically low level.
An increase before next year’s election seems unlikely, but post-May 2015 all bets are off, and even a small percentage increase will sweep like a tidal wave through the recently purchased part of the property market.
A version of this post also appears on the kbb Birmingham website. kbb Birmingham is organised by UBM Built Environment who are sponsors of the ‘between you and me’ blog.