What does RICS do?
The primary role of RICS is as a professional body that monitors all aspects of property, land, construction and the associated environmental issues.
It represents, regulates and promotes chartered and technical surveyors both in the UK and internationally, and has around 110,000 members in 120 countries.
As an independent, not-for-profit organisation, the aim of RICS is to uphold standards of competence among its members and provide advice on economic issues affecting business and society worldwide.
To this effect, RICS produces regular reports on both the property markets and how the economic background is likely to affect it by questioning its members on their experiences.
The reports are aimed at anyone with an interest in the property market ‘ from its members to the media and from people in the City of London to students.
What is RICS’ involvement in Europe and what lessons can be learnt in the UK market?
RICS’ membership extends overseas, but is mainly based in Europe and especially France, Germany, Italy and Spain. RICS set up offices in these countries during the last decade and produces economic analyses in the individual countries in the same way as it does in the UK.
RICS Europe acts as an umbrella organisation for these different national associations, and the reports are translated into different languages. The reports have found both similarities and differences between mainland Europe and the UK. In general, differences include lower levels of owner-occupation, apart from Spain, in which over 80% of property is owner-occupied. This means the UK has a larger mortgage market than most of Europe, although other countries are slowly seeing an increase and mainland Europe is moving towards the UK model.
In France, the Financial Services industry is also in the process of going through reforms, although in contrast to the UK it is trying to de-regulate the market. This means that those lenders focusing on the lower end of the market should be freed up to do more. While RICS cannot predict that any trends in Europe will affect the UK, it does have more fixed rate mortgages because of the stable interest rates, which is something we are seeing in the UK.
From RICS’ point of view, what have been the high and low points in the UK property market over the last three years?
The most noticeable point has been the boom in house prices, which began in 1998. After the slowdown in the early 1990s it took off again from this point. Initially this boom was a London boom rather than a national one, but our surveyors’ reports showed how this rippled out across the country to include the North.
The high point would be that this boom has occurred in a much more stable economic environment than the last one, which has helped to keep the momentum of the growth in prices. Historically low interest rates and low inflation have been major contributing factors to this growth and have helped to stabilise the regional imbalances.
The low point is yet to come, as there is a concern from surveyors that the house price boom is not sustainable and the UK could see a cooling off in growth as more borrowers find they cannot afford to get on the housing ladder.
But, like most organisations, RICS’ surveyors predicted the slowdown would happen this year, and the surveyors estimated that house price growth would have reached 6% by the end of the year. This has now been revised to 19% for the year, but next year again it is estimated to drop down to 7%.
What should UK mortgage brokers be paying attention to at the moment?
As I have mentioned, the housing market is expected to slow down next year, which will be due in part to a general weakening of the economic background.
At the moment the main factor is low interest rates, which means the affordability factor has helped the boom, but further down the line this could come back into the picture in a negative way.
The reports indicate people have seen such low rates as an opportunity to take on larger debts than normal. Low inflation means low pay increases, so the mortgage debt is not eroding at the rate it might have done in the past. Eventually this may even stop people getting on the housing ladder and the market will not be able to grow.
What developments are RICS forecasting for the future?
Over the next year the economy is not thought to grow as fast as it has been, and we will see slower growth in incomes. We may see price corrections in certain areas where the current rate of growth is unsustainable.
It would be fair to say the risks are probably greater in some areas of the South. But this is not to say this will happen across the whole country.
Ben Marquand is deputy editor
l Ryan Emmett will be discussing the economy in more detail at The Mortgage Event in association with Mortgage Solutions in Bolton on 24 September 2002. Contact www.themortgageevent.com.