How is the property market looking as we move into 2019?
As we move into 2019, it's a natural time for property developers and homeowners alike to review the state of the market and its likely movements in the year ahead. With Brexit on the horizon and dominating the headlines, let's take a closer look.
The current state of the UK’s property market
Figures from Nationwide building society showed that house prices moved by 0.3% month on month in November, but that the ongoing uncertainty about Brexit meant that the market overall remained rather subdued. The annual property inflation rate now stands at 1.9%, compared to 1.6% in October, and the price of an average home is £214,044 (bearing in mind, of course, wild regional fluctuations!) However, as ever, it’s worth scratching under the surface of immediate figures, because UK homes actually fell by £500 between October and November in real cash terms. The index rise was simply a seasonal adjustment made by Nationwide as part of its statistical analysis.
Key predictions for the year ahead
Every property developer, estate agent, buyer and seller is awaiting the outcome of Brexit to understand the economic impacts. Many market analysts believe that when the uncertainty finally ceases – after what has felt like a prolonged period of negotiation and intense political wrangling – prices within the property market are likely to spring back. However, the Bank of England’s chief recently warned that Britain’s house prices could plummet by a third if there is a no-deal situation and this warning has already begun to have an effect on the market. Yes, it is an ‘Armageddon’ prediction, no doubt designed to remind government ministers that inter-party politicking needs to be put aside for the best possible Brexit deal, but the effect of such a claim is still concerning for many and likely to cool demand by cautious buyers. For now, comments such as these from high-profile market influencers only increase uncertainty and nervousness in the property market and continue to keep activity subdued.
‘Austerity’ was the buzzword for many months, but the squeeze on the average household income is already beginning to lessen. Policymakers have indicated that interest rates should only increase ‘modestly’ and at a controlled pace in the coming years – so long as the economy continues to perform according to expectations and employment continues to be strong. If homebuyers and developers alike feel confident in a long-term period of affordable interest rates, the property market should remain healthy.
The UK still faces a housing shortage, but construction has picked up significantly in recent years, following the financial crisis of 2008 onwards where new builds dropped by nearly 60%. In 2017/8, there were over 195,300 new build homes completed, which is just 3% under the pre-crisis figures for 2007/8. This shows that housing supply is steadily beginning to improve after a solid decade of insufficient property development to meet growing population demands and an increase in single-dwellings.
In fact, once development of conversions is factored in – for example, from office to residential spaces – the figures show that housebuilding is now almost at the peak on record, with 1.9 million homes having been completed since 2007, a total property stock rise of 8.5% overall. The availability of necessary bridging finance and development finance also continues to be strong, and steady base interest rates will continue to support this trend.
Potential UK homebuyers are still understandably reluctant to commit to purchases at the moment, with concerns that include the impact of Brexit (why buy now if prices are really set to plummet?), uncertainty over interest rates and broader worries about the state of the economy. Sales volumes are either negative or flat now across all but one UK region.
Overseas buyers and second homes
However, foreign buyers are still piling into Britain and a whopping one-third of all property transactions of £1 million or above this year were made to overseas investors wanting to secure a second home. These buyers aren’t put off by the government’s capital gains or stamp duty taxes, and London continues to be the focal point for high-net-worth individuals buying from the Middle East, Russia and the Far East. This is partly because the priciest properties are now less expensive, and sterling continues to be weak. However, the Treasury continues to benefit, as it has seen its stamp duty revenue from these second-home investors jump to 50% from 30% in the space of a year. And the extra 3% stamp duty tax alone has brought in over £4 billion. Factor in house purchases across all price brackets and the government is seeing 40% of its tax receipts being generated by purchases of second homes.
Buy to lets
“The demand for rental properties looks set to remain positive, and rent may continue to rise as the supply of rental properties falls. This is because small landlords have been hit hard by recent tax changes and are exiting the market.” – Property Development Finance Experts Hank Zarihs Associates
There may well be a rise in larger corporate landlords, however, and possibly more public-funded social housing again. Large householders are partnering with local authorities to begin building on council land, and the use of build-to-rent schemes seems to be picking up once more.
Another interesting trend to watch out for this year will be the use of technology, with ‘proptech’ expected to revolutionise the way that new homes are built, development finance is provided, and properties are bought and sold. Many analysts believe that the UK property market is ripe for disruption, and that technological innovation will bring new efficiencies and growth overall.
Despite the Brexit worries, many analysts believe that demand is currently artificially pent-up and that it will release next year, particularly once the Brexit negotiations are finally finalised. This could particularly be the case if employment remains strong and rising, household income squeezes continue to moderate and interest rates remain low. Regional markets are expected to remain resilient and see the most housing sector growth. Zoopla recently named cities such as Edinburgh, Manchester, Birmingham, Leicester and Liverpool as being property hotspots for the year ahead. Manchester has already enjoyed the highest levels of price growth in Britain for five out of the past six years. Savill’s has forecast that property prices in the NW will grow by over 21% in the coming five years, with the North expected to show a significant degree of resilience to the fluctuations of Brexit.
We’ll continue to post updates as they occur and keep our clients up to date with the latest happenings in UK property.