Party Wall etc. Act 1996 – Much more than just Party Walls!

It is easy to see how the Party Wall etc. Act can be mis-interpreted, particularly by members of the public, just by the nature of it's title.  For those who work in the property professions and interact with the Act on a regular basis there will be generally less confusion, however in my experience this is not always the case! 

Source: http://www.cwcpartywalls.co.uk/

Although there is a lot of information available about the Party Wall etc. Act 1996 (the Act), and its implications, it appears that there is equally as much misunderstanding or even ignorance about the Act, particularly from members of the public in relation to if and when the Act may apply.  This article is therefore primarily aimed at those with little to no knowledge of the Act, however others may also find it of interest. 

Awareness of statutory approvals such as Planning Permission and Building Regulations approval seems to be improving, however, the existence let alone the requirements of the Act, often comes as a complete surprise to many. If you are proposing certain types of work on your land or too your property then you may be required to ‘notify’ your neighbour under the Act.  It is worth pointing out at this point that the requirements and procedures within the Act are completely separate to other statutory permissions such as Building Regulations and Planning Permission.  On a number of occasions I have been informed by householders that they were either not made aware of the requirements of the Act by their advisors or that they thought that they had obtained all of the relevant permissions because they had Planning and Building Regulations Approvals, which is completely incorrect.

If you are proposing any work to your land or property it is worth undertaking a little research to establish if the work falls under the scope of the Act and therefore will require notification to your neighbour/s (something referred to as Adjoining Owner/s under the Act).  As you would expect, I would always advise you to seek professional advice to confirm whether notification under the Act is required and if so help to guide you through the process, however, nowadays, with the raft of information available on-line, there is no reason why you shouldn't undertake your own research to give you a better understanding of the Act.  The Department for Communities and Local Government have produced an excellent explanatory booklet, which explains the Act in a clear understandable manner and provides a really good starting point, particularly for those with little or no knowledge of the Act.  You will find a copy of the booklet by clicking on this (link).

You may be surprised by the range of different types of work that are notifiable under the Act, which you will see are not just restricted to a party wall itself. The Department for Communities and Local Government booklet defines a party wall as, ‘a wall is a "party wall" if it stands astride the boundary of land belonging to two (or more) different owner’. The booklet then provides some illustrations to demonstrate this point.  It is interesting to note that the definition of a party wall is not just restricted to a wall inside a building, but can also relate to external walls also, such as boundary walls.  The Act uses the term ‘Party Fence Walls’ to describe walls that are not part of an actual building itself, however may still require notification under the Act for works to, or in close proximity to them. 

Source: http://www.mypropertyguide.co.uk/

The term ‘etc’ in the title of the Act is also significant. Three innocent little letters (etc.), however the implications of the term denote that the scope of the Act is much wider than just party walls.  In fact some works that require excavations near neighbouring buildings may also require notification under the Act. Section 6 of the Act requires notification of excavations within 3 metres (refer to diagram above) or within 6 metres of a neighbour's building or structure based upon the following criteria: 

‘excavate, or excavate and construct foundations for a new building orstructure, within 3 metres of a neighbouring owner’s building or structure, where that work will go deeper than the neighbour’s foundations;

or excavate, or excavate for and construct foundations for a new building or structure, within 6 metres of a neighbouring owner’s building or structure, where that work will cut a line drawn downwards at 45° from the bottom of the neighbour’s foundations’

The six metre ‘rule’ is a little more complicated to understand (see the diagram below) than the three metre ‘rule’ and usually relates to deeper excavations such as piled foundations and the like.  It is also worth noting that the six metre rule can affect more than one adjoining owner, depending upon the depth of excavation and the proximity of adjacent buildings and structures.  In order to establish how many adjoining owners may be affected in any instance by the six metre ‘rule’ it will be necessary to take measurements and produce a section drawing which will detail the depth of the proposed excavation and the location and proximity of adjacent structures and buildings.  Professional expertise is highly likely to be needed to take measurements and further investigations such as trial holes to establish existing foundation depths, to be able to produce a section drawings. This will help to establish if and how many adjoining owners will be affected.

Source: http://www.mypropertyguide.co.uk/

Another term used within the Act is ‘Party Structure’.  This again suggests that the Act does not relate exclusively to party walls.  In fact there are a number of notices that may be issued under the Act, one of which is a Party Structure Notice.  The reason the notice is not entitled a Party Wall Notice, is that this would be misleading and not account for any works other those to Party Walls.  Party structures are generally party walls however can also be defined as dividing structures such as floors and other partitions, however it is very rare that these structures are subject to party wall notification.

In summary it is easy to see how the Act can be misinterpreted, particularly by members of the public, just by the nature of it's title.  For those who work in the property professions and interact with the Act on a regular basis there will be generally less confusion, however in my experience this is not always the case!  As notification under the Act may be required for a whole range of different types of work, as defined in section 1, 2 & 6 of the Act, all construction professionals, regardless of discipline should have a good understanding of the Act including it’s procedures.

In next week’s article I discuss retrospective party wall notification and in future articles I will consider different types of notifiable works in more detail, as well as tackle the thorny issue of fees under the Act. 

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

Planning for Offices - Space Rationalisation

Guest article from Joe Malone BSc(Hons) ICIOB 

Understanding the existing core data for the building you inhabit may well highlight that it is not fit for purpose or space inefficient; critical information if you are reviewing plans for future accommodation that may well fuel your appetite for a move

Source: http://www.sven.co.uk/

Many organisations, particularly Government organisations are currently reviewing their office space requirements with a view to rationalising and making efficiency savings but how should you approach this exercise? Many organisations see this as a simple exercise in reviewing their ways of working and you will commonly hear of organisations looking to reduce their desk to staff ratio but organisations looking to build or rent new office space have a unique opportunity to fully consider how their buildings can contribute to space efficiency and the starting point to this is first ensuring that your organisation has a robust space standard. It consistently surprises me that so few organisations have a space standard in place.

The Space Standard

Essentially the space standard will contain ideal core data drawn from best practice guidance produced by The British Council for Offices and the Office of Government and Commerce.

The National Audit Office recently published this report which again placed emphasis on government organisations to start the space rationalisation process (Link)

The simple table below shows ideal data drawn from best practice guidance and provides a template for space planning. If you were planning to inhabit existing rather than new office space then the Net Internal Area (NIA) of 10m² should be increased to 12m² and the table should review actual core data for the building you inhabit. In fact understanding the existing core data for the building you inhabit may well highlight that it is not fit for purpose or space inefficient; critical information if you are reviewing plans for future accommodation that may well fuel your appetite for a move. 

Aside from best practice guidance there are some subjective issues based on the organisations culture and aspirations for team working. Is there an aspiration to remove the perceived management hierarchy by having managers share the same open plan floor space as staff?  Undoubtedly, open plan office space is more efficient and encourages collaborative team working but are there issues of business privacy that would prohibit this working arrangement? Privacy is often the given argument for individual staff retaining their own office space but it is seldom justified when shared but limited cellular space can be booked by all staff members at suitable times. 

Office Ideal Core Data (New Space)
Headcount	190
Minimum legal requirement for office space provision per staff member	11m³
Office of Government Commerce (OGC) and British Council for Offices (BCO) standard for NIA per person (Average public sector = 24m² per person)	10m²
Business aspiration for efficiency savings	30%
Ratio of workstations to staff	7/10
Number of workstations to achieve 30% space efficiency	133
Cellular space	≤ 10%
Meeting Room provision	Typically 1.2 m² per staff member
Primary circulation space as a percentage of total NIA (Normal range for efficient buildings = 10-15%)	≤ 15%
Floor plate efficiency (NIA:GIA)	80-85%
Flexible partitioning	Yes
Local Support Space	≤5% of Total NIA
Central Support Space	25% of Total NIA
On Site Parking Space provision standard	1 space per 25m² of GEA
Required number of staff parking spaces	100 (0.8 ratio spaces/desks)
Ideal GEA Required for staff parking	1900m²
Number of single user offices	6
Number of Meeting Rooms	8

Efficiency Savings on Existing Office Space

You are of course limited on efficiency savings that can be made on existing space, your floor plate efficiency is generally fixed and you may be limited in changes that can be made to cellular and primary circulation space etc. Those who inhabit more modern buildings with flexible partitioning have a greater opportunity to make physical changes to the floor space and therefore rationalise how they use that space.

In general terms organisations will look to review their ways of working and introduce clear desk policies, increased working hours or mobile working so that they can reduce their desk to staff ratio. The average cost of a work station is circa £4500 per staff member so if you reduce the number of workstations by 30% then there are some immediate and on-going savings in not providing or supporting these work stations. If the object of this exercise is to free up space to achieve a headline figure of  say 6m² per staff member then the question I would ask is, ‘What do you now intend to do with the free space you’ve created?’ I come across this anomaly many times, organisations want to achieve this headline figure but have no real plans for the space created, moreover they have these hypothetical ideals of space per staff member in mind without understanding the wider context of additional space required for circulation and support.

If you rationalise and free up space then make sure you can generate income from that space otherwise what’s the point?

Efficiency Savings on New Office Space

I’m currently involved with the planning a new build office and if we use the ideal core data in the table we see that we have 190 staff and a guide for 10m² of NIA per staff member. This means we have to build an office with a net internal area of 1900m², or do we?

The reality is that we are still looking to reduce our desk to staff ratio by 30% and it follows that we can reduce the size of our building by 30% leaving a total requirement for only 1330m² of NIA. At our anticipated build cost of £836 per m² then this space reduction would save around £550k on the cost of development. Whilst these savings are incredibly attractive I should issue a word of caution… organisations that take full advantage of these space savings can lose business flexibility! Are you absolutely sure that there will be no future requirement for additional space? It’s a fact that many public sector organisations have a continuous downward trend in terms of the number of staff they employ but private sector businesses looking for continued growth should bear in mind future space requirements.  

By rationalising and freeing up space, organisations can create the opportunity for the co-location of services. Rochdale Metropolitan Borough Council recently took the opportunity to  relocate staff from geographically dispersed premises throughout the Rochdale area into a single Municipal Office providing a single point access service to a mixed use development containing offices, library, restaurants and cafés. They were fortunate in appointing an architectural firm who are fully conversant with BCO guidance and best practice and I’m sure that this was a critical success factor in their excellent new office design. (Link)

The concept office design I created in Sketch-up had a greatly reduced footprint and reduced development cost due to the space freed in the adjacent building and the glazed link provided to utilise that space.

Source: Joe Malone

Concept Office Design Utilising Free Space Created in Adjacent Building

For cash strapped public sector organisations looking to review their accommodation, identifying space efficiencies for shared accommodation or co-location can be the critical factor in gaining approval for new office development.

Joe Malone BSc(Hons) ICIOB 

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

More Shocking Health & Safety Poor Practice Pictures! – Part 2

Despite the introduction of a raft of construction related health & safety legislation over the last 30 years, there still remains an unacceptable amount of fatalities, serious injuries and avoidable accidents and injuries within the UK construction industry

Source: http://www.worldofstock.com/

Just before Christmas I published an article which proved incredibly popular (Link) that highlighted the huge risk some are prepared to take when undertaking construction/maintenance works, with little to no consideration of their own health & safety. The article identified that the UK construction industry is one of the most heavily regulated industries in the World and although statistics show that improvements have been made in recent years, it is clear from the latest Health & Safety Statistics (HSE) statistics that there remains room for significant improvements:

‘There have been significant reductions in the number and rate of injury over the last 20 years or more. Nevertheless, construction remains a high risk industry. Although it accounts for only about 5% of the employees in Britain it accounts for 27% of fatal injuries to employees and 10% of reported major injuries.

Despite the introduction of a raft of construction related health & safety legislation, there still remains an unacceptable amount of fatalities, serious injuries and avoidable accidents and injuries within the UK construction industry. The previous article made reference to the ‘human factor’ which seems to be a inbuilt self destruct mechanism whereby we as human beings think we can expose ourselves to whatever risk we want because we are invincible! Sadly, this is not the case as statistics prove otherwise.

Below I offer some further images, which are widely available on-line, and provide some shocking examples of how little some people value their lives and how they are prepared to accept high levels of risk, by cutting corners.  The images are taken from all over the World, not just the UK.  Just like the first article, when you look at the images below I am sure you will ask yourself, ‘what was going on in that person’s head at the time’, a question that these people obviously failed to ask themselves:

http://professormungleton.blogspot.co.uk/

Source:http://www.outsource-safety.co.uk

Source http://www.building.co.uk/

Source: http://www.hireup.co.nz/

Source: http://www.hireup.co.nz/

Source: http://www.wiltshiretimes.co.uk/

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

Modern Methods of Construction - Insulated Concrete Formwork (ICF)

The benefits of using MMC’s are well documented and include improved quality, speed of delivery, less waste, reduced risk to health & Safety, minimises disruption etc.  These will vary depending on the method used in addition to the size and nature of the project. Just like using traditional methods of construction the benefits of MMC will only be realised if the project is planned and implemented (and managed) efficiently. 

Source: http://www.icfinfo.org.uk/

The term Modern Methods of Construction (MMC) has been used for many years now, to describe alternative methods of construction and processes that move away from the traditional methods of masonry construction that we have used historically for many hundreds of years.  There are a number of commonly used and now commonly understood forms of MMC and these include the likes of off-site fabricated components such as Pre-Cast Concrete, Panellised Components such as Structurally Insulated Panels (SIPS), Timber Frame, Volumetric (often referred to as pod construction).  There are also a number of MMC’s that are site based and categorised as non-offsite manufacture methods and these include the likes of Tunnel Form, Thin Joint and Insulated Concrete Formwork (ICF).  There are also hybrid and sub-assemblies and components that provide additional MMC options, demonstrating that there is a range of different possibilities offered compared to traditional construction methods.

Of course we could have the debate about when a particular modern method of construction stops being modern.  For example pre-cast concrete has been used extensively in the UK for the best part of 35 years so is this really that modern anymore?  For simplicity however we seem to be happy to generalise modern methods of construction as alternatives to traditional construction methods for which pre-cast concrete still fits this definition.  The benefits of using MMC’s are well documented and include improved quality, speed of delivery, less waste, reduced risk to health & Safety, minimises disruption etc.  These will vary depending on the method used in addition to the size and nature of the project. Just like using traditional methods of construction the benefits of MMC will only be realised if the project is planned and implemented (and managed) efficiently.  MMC also has the potential for cost increases, relies on very tight delivery dates and can be affected by manufacturers capacity if off site methods are being used.  It is clear therefore that careful consideration needs to be given in order to decide if modern methods of construction are appropriate and if so which is the most appropriate to use, which will vary on a project by project basis.

I will consider a number of MMC’s in future articles however for this particular article I will focus on Insulated Concrete Formwork (ICF). This form of construction uses polystyrene blocks which act as permanent shuttering and are filled with in-situ concrete.  Self-build.co.uk provide a good description of ICF:  ‘ICF is an insulated in-situ concrete system  comprising hollow blocks or panels, usually made of polystyrene, and ready-mix concrete. The blocks are stacked and fastened together with metal or plastic connectors to create the walls of a building and are pumped full of concrete to form the structure. The polystyrene is used as a permanent part of the structure’. 

ICF offers a number of advantages compared to traditional construction methods, however the ease and speed of construction are arguably the biggest advantages.  Firstly, the polystyrene blocks, which are connected with metal or plastic connectors, use semi-skilled labour for installation.  There is no bonding material such as mortar so the polystyrene formwork can be connected and installed in a very short period of time, saving money on time and labour.  Take a look at the video below to see how ICF is installed.

The polystyrene formwork is usually constructed to first floor level before it is filled with concrete.  Once the concrete has cured, floors (often pre-cast concrete) can be added followed by further polystyrene formwork and eventually a roof, depending upon the height of the construction.  The formwork provides excellent thermal efficiency, achieving U values of between 0.30 and 0.11 W/m2K, which are capable of not only achieving, but exceeding current UK Building Regulations requirements. The process of constructing a traditional cavity wall requires external masonry, a cavity with insulation and internal masonry (usually blockwork).  This is labour intensive and often time consuming to complete, something that is not such an issue with ICF.  Whereas traditional construction may be vulnerable to disruption due to the weather this is also less of an issue with ICF due to the reduced time needed during construction. Once the ICF system has been installed the external walls can then be clad in a variety of different materials.  Renders, timber cladding or brick slips are examples of materials that could be used which give the building a modern or traditional appearance from the outside.  

How then does ICF compare to traditional construction from a cost point of view? http://uspace.shef.ac.uk identify that although initial costs may seem high compared to traditional construction methods, costs savings will be made due to reduced site installation time and the use of semi-skilled labour:

Source: http://theparliamentaryreview.co.uk/

‘Perhaps the main factor that turns many potential ICF builders away from the whole idea is their headline cost. They appear to be very expensive when compared with blockwork wall costs. Most ICF systems on sale in the UK cost between £25 and £35/m²; add ready-mix concrete at £10/m² plus a few extras and you have a wall cost of well over £40/m² before you have even taken labour into account. In contrast, blockwork can be built for around £20/m² including labour.

But, as so often happens when you come to cost out elements of building work, a more thorough comparison shows the ICF cost model in a very different light. A blockwork wall on its own is only a small part of the overall wall assembly: it needs an insulated cavity and a waterproof outer skin, usually built from bricks, stone or a rendered second skin of blockwork. Also, the joinery openings require steel lintels over them and there is additional work required with wall ties and cavity closers. A truer figure for the cost of a brick and block wall is between £70 and £100/m².

In contrast, the labour costs on ICF are very low: an experienced ICF crew is capable of laying 5m² of wall per hour. Combine this with an external render coat, costing around £25 or £30/m², and you end up with a wall cost of between £80 and £90/m², slap bang in the middle of the cost range for masonry and timber frame walling. But in return, you get very high energy-efficiency levels built in at no extra cost, good soundproofing, excellent airtightness and less room for poor detailing, as often happens with masonry cavity wall work.

Another plus factor for ICF costing stems from the speed of build, which reduces the preliminary costs of building, the money spent on fencing, plant and scaffolding. Several of the systems offer the possibility of building the walls up entirely from the inside, thus further reducing the need for external scaffolding until much later in the job. ICF no longer looks expensive and as if to emphasise that point, it is now being taken up by commercial developers as well as self-builders’

It is clear that ICF offers a good alternative to traditional construction methods with many benefits. Perhaps this method of construction will become more commonplace in the future, particularly as we explore alternatives to traditional construction.  With ever changing Building Regulations powering a drive for higher thermal efficiency in buildings and more efficient ways of creating, using and conserving energy, maybe ICF is a step in the right direction?

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

Flooding – A risk to property that cannot be ignored!

The Association of British Insurers highlight the financial cost of flooding in the UK: ‘Since 2000 insurers have paid out £4.5 billion to customers whose homes or businesses have been hit by flooding. This is up 200% on the £1.5 billion paid in the previous decade in real terms’

Meriden, West Midlands 2012 - Source: Own

Over recent years flooding in the UK is something that has become a regular news event and something that seems to be happening on a much more frequent basis.  In fact even at the time of writing this article (7^th January 2013), we are experiencing prolonged periods on heavy wind and rain, resulting in flooding in many parts of the UK.The disruption caused is often extremely stressful, expensive to rectify and sometimes even life threatening.  The facts and figures below (Environment Agency, Defra and Parliament UK cited in http://www.aquobex.com) provide a stark reality of the impact of flooding, some of which my raise a few eyebrows: 

1. Around 5 million people live in flood risk areas in England and Wales.
2. One in six homes in England is at risk of flooding.
3. Total rainfall in the UK during 2012 was 1,330.7mm, just 6.6mm short of the record set in 2000.
4. 2012 was the UK’s wettest year on record.
5. Annual flood damage costs are in the region of £1.1 billion across England.
6. 5.2 million properties are now at risk of flooding in England
7. Flash floods can bring walls of water from 10 to 20 feet high.
8. 25% of flooding occurs outside areas formally designated as being flood prone.
9. 40% of businesses do not reopen after suffering a catastrophic loss.

The Association of British Insurers highlight the financial cost of flooding in the UK: ‘Since 2000 insurers have paid out £4.5 billion to customers whose homes or businesses have been hit by flooding. This is up 200% on the £1.5 billion paid in the previous decade in real terms’. Insurance cover is provided for flooding by a range of insurers however as with any insurance, premiums will reflect the level of risk to the insurance company. This could result in significant rises in premiums or indeed insurance cover being refused.  In order to try to ensure that flood insurance remains widely available and at ‘affordable’ levels a new Government backed scheme is currently being formalised in the Water Bill which is in the process of going through Parliament: ‘An insurance deal that links flood insurance premiums to the size and value of your home, based on council tax bands, comes into force in 2015. Under the plans, a non-profit-making insurance company called Flood Re will be set up to provide insurance cover to 500,000 households in the worst affected parts of Britain. It will be funded by a contribution of £10.50 from every household across the country, resulting in an estimated income of £180m a year, which will be used to pay for repairs’

Meriden, West Midlands 2012 - Source: Own

If flood insurance cover were to be refused it would significantly reduce the value of a property as well as resulting in a property being virtually impossible to sell. Avoiding this scenario is undoubtedly the main drivers behind the proposed new government scheme.  In any event, due to the amount of publicity that flooding has received in recent years, purchasers have become much more wary of the possibility of flooding during the conveyance process, with Solicitors advising their Clients of the importance of undertaking a flood risk assessment. There are however a number of things that a prospective purchaser can do to help establish if flooding is a possibility, before Solicitors are instructed.  A visit to the Environment Agency Website, provides access to their flood map, which details information relating to flooding around rivers and the sea, by simply inputting a postcode. This information is free to access and can provide an indication of whether flooding may be an issue, and if so can then lead to more extensive investigations. Given the disruption, cost implications and difficulties with insuring properties at risk of flooding, this is a simple way of making an initial assessment at a very early stage.

During the purchase of my current home, approximately eighteen months ago, my Solicitor advised me that a flood risk assessment was necessary.  After reviewing the environment agency flood map, I established that my property was not within two miles of a river or flood plain and that the risk of flooding was negligible/unlikely. I advised my Solicitor of this and informed them that I would not require this ‘search’, saving myself £75 in the process. 

If you are not confident with or do not want to rely on the free information from the Environment Agency Flood Map you can undertake a further on-line search with Land Registry ‘Find a Property’ (Link).  This search will cost you £9 currently and provides a little more detail than the Environment Agency Flood Map and also includes an indication of the likelihood of flooding.  I am not a Solicitor however I would suspect that this is where a ‘Solicitor’s search’ takes place. The Law Society recognise that conveyance Solicitors ‘are not qualified to give advice on flood risk or interpret technical flood reports’ However, the Law Society ‘do consider that conveyance Solicitors can at least pass on information to help clients who are purchasing property’. This begs the question therefore of why a person would pay a Solicitor in the order £75 for something that they can easily obtain for £9 themselves, bearing in mind that the Solicitor will not provide any interpretation or guidance from the search.

Buildings located near watercourses are often perceived as desirable places to live due to the views that are often provided.  Whilst this may be true for the large majority of the time, it only takes a period of adverse weather, sometimes occurring many miles away that can change a small stream into a raging torrent, raising river levels, bursting banks and causing flooding. The risk of flooding is unlikely to be visually obvious at most times of the year, so it is imperative to take the time to assess the risk of flooding to establish whether this may become an issue.  Simple, free or cheap research, as described above, which almost anyone can undertake provides a simple effective way of finding this information.

Please feel free to share this article and other articles on this site with friends, family and colleagues who you think would be interested

Information/opinions posted on this site are the personal views of the author and should not be relied upon by any person or any third party without first seeking further professional advice. Also, please scroll down and read the copyright notice at the end of the blog.

UK Housing Market - What's in Store for 2014?

Publicity is a powerful tool where positive news will engender confidence in numerous areas of the economy, particularly the housing market.  Very few will be willing to buy or sell property in a stagnant or reducing market, however as soon as the message changes to something more positive, we see what we are seeing now, where more properties are put on the market and house prices start to increase

Source: http://www.2mrealty.com

If we take a look back to the beginning of 2013 there were many who were predicting a tough year for the UK economy, with continued slow growth of the housing market, low construction output and in fact concerns about slipping back into a triple dip recession.  The reality however would have surprised even the most optimistic amongst us.  On 20^th December 2013, BBC News Reported: ‘The UK economy is growing faster than previously estimated, according to the latest official figures. The Office for National Statistics (ONS) said gross domestic product was up 0.8% in the July-to-September period compared with the previous quarter, confirming its previous estimate. This means the estimated annual growth rate has now risen from 1.5% to 1.9%, a revision that has surprised economists’. 

Contributing to the unexpected improvement in the economy was an equally surprising upturn in the UK housing market. The Guardian (online) reported on 30^th December 2013:  ‘On average, house prices grew by 4.4% during 2013 as the housing market revival took hold, following a 0.3% drop during 2012. Prices increased by 0.5% month-on-month across England and Wales in December, marking the 11th consecutive month of rises. London and the south-east registered the strongest gains across 2013, with prices lifting by 9.1% and 5% respectively while prices in the north fell by 0.5% over 2013.  75% of postcodes registered price gains over the year, 15% saw prices edge down and 10% were unchanged. This marks a sharp turnaround compared with 2012, when just 20% of postcodes recorded price increases’.

In addition BD Online reported on 30^th December 2013: ‘Growth in house building is at its strongest for 10 years but levels of commercial construction also rose sharply and civil engineering projects also saw sustained growth. Construction firms are growing increasingly positive about the year ahead and the number of firms anticipating a rise in workloads is the highest since September 2009’.

Based on the many ‘good news’ stories similar to those detailed above, it would appear that we are heading in the right direction with the UK moving out of the economic wilderness with a much more rosy and stable future ahead.  BUT………. is this really the case?

Source: http://www.express.co.uk

As an analogy, let us think about the UK economy as a sportsperson who has suffered a severe injury, one that has possibly threatened their career.  A lengthy spell of physiotherapy and rehabilitation is required in order for them to return to full fitness.  If this process is rushed or not undertaken properly, the sportsperson could aggravate the injury and end up back to where they started.  This is also the case for the UK economy.  If we do not manage the pace of the recovery appropriately, we could quite easily end up back in recession. Frozen or low salary increases, increases in the cost of living including ever increasing energy prices, high unemployment, control of inflation, interest rates, reduction in public spending and other austerity measures are some of the factors that need to be addressed as part of any recovery.  Each factor cannot be considered in isolation and in fact are all dependant on one another, therefore the fragility of the economy is determined by a fine blend of how all of these are managed and controlled.

Publicity is a powerful tool where positive news will engender confidence in numerous areas of the economy, particularly the housing market.  Very few will be willing to buy or sell property in a stagnant or reducing market, however as soon as the message changes to something more positive, we see what we are seeing now, where more properties are put on the market and house prices start to increase.  The government will no doubt point to their ‘help to buy’ scheme as a key factor that has kick started the housing market, which may well be true, however my concern is what will happen in a few years time when the effects of the help to buy start to wear off.  In order to use the first part of the scheme borrowers will first need to save a deposit of 5% of the value of the property they want to purchase.  They will then be able to apply for an interest free loan for a further 20% of the value of the property, to a maximum loan value of £120,000. Repayment of the loan will then be made when the property is eventually sold. After five years the loan will start to attract what the government call a ‘fee’, which is basically interest at a rate 1.75%.

The upshot of the help to buy scheme is that purchasers may enter the market before they are financially ready.  If they fail to consider to the financial consequences of future loan repayments (including the 20% borrowed) plus inevitable interest rate rises, in addition to continued increases in the cost of living, then they joy of owning a house is likely to be short lived. As a short term measure there is little doubt that the help to buy scheme will bring more first time buyers to the market, in fact this is already happening.  There is however one fundamental flaw in the scheme.  House prices are determined by the market.  The problem we have in the UK, one which we have had for many years, is that we just do not have enough houses.  With a restricted supply and high demand the market will naturally re-adjust, resulting in increasing house prices. Incentivising, large numbers of first time buyers and new investors into a market which already has a restricted supply is not the answer.  Investing in large scale housing development is the only real way of dealing with the housing shortage and controlling house prices, something that our UK government seem incapable of resolving.

Also we are likely to see continued increases in house prices in the UK through 2014.  This is not good news for those looking to enter the market for the first time.  Increasing house prices mean that deposits will also increase proportionally, therefore first time buyers should consider entering the market as early as possible in 2014, to reduce the impact of likely increases. 

In conclusion, it would be fair to address the optimism in the UK economy and particularly the housing market with a note of realism.  Yes, we are starting to see some improvement, however we have a long road ahead to achieve a sustainable recovery.  Short term optimism does not mean long term stability. Do not be misled by the decision makers and policy makers who want us to believe (through the media) that all is now fixed and we that we can go out and borrow beyond our means again.  This is exactly the approach that got us into a mess last time around.  It is a sustainable recovery and a stable economy that we are striving for and this cannot happen overnight.

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