The UK property market is approaching its peak season across spring and summer, yet this year could see the brakes on activity across the nation. The uncertain political landscape has caused concern and hesitation among potential buyers, and this, in turn, has affected demand, sales, and new properties entering the market.
Over the last year, the market has been presented with considerable shifts from pivotal issues, such as the EU referendum in June 2016, the stamp duty increase in March 2016, and the US general election in November 2016. The ambivalence has only increased following the announcement of a snap general election in the UK and is likely to linger until the outcome is clear.
Following the results of the EU referendum last year, property prices fell continuously for the first time in four years, leading to an average property value of £214,140. New homes registered in the UK also experienced a drop of 15 percent, with an even larger 62 percent drop in London. It wasn’t until September that property prices started to rise again, with London growing at a slightly higher rate than the rest of the UK, at 1.5 percent. Following this increase, it was predicted that prices would continue rising at a rate of 3.3 percent over the following five years, by the Royal Institution of Chartered Surveyors (RICs).
Recent changes in the market have led to doubt in predictions, and RIC’s revealed in their latest report that new additions to the market are at an all-time low, mostly due to the three percent rise in stamp duty fees. Potential buyers are investing in their existing homes rather than purchasing new, to avoid extra costs, and landlords are feeling the strain of their more expensive property portfolios and have slowed their buying habits. The decrease in demand for new properties has exerted additional stress across Britain as a whole.
High inflation and low salary growth take their toll
Not only has the reduced demand affected activity levels, but rising inflation, due to the falling value of the pound, and weak salary growth is putting additional pressures on potential buyers who are looking to purchase new. Currently, the average house price in the UK is six times more than the typical household annual income, and almost double that in London. These rates are substantially higher than the prevailing ratio of 4.3.
House prices started to fall again in March, at a rate of 0.3 percent, and a further 0.4 percent drop in April; which is the first consecutive drop across two months, in five years. With inflation expected to go as high as three percent in the next few months, annual house price growth has fallen to 2.6 percent, which hasn’t been seen since June 2013. It is expected to fall even further in line with rising inflation, to two percent, which is over half the 4.5 percent growth rate encountered in 2016.
Transactions levels on the more affluent end of the market, with properties priced above £500,000, have fallen by 14 percent. However, several expensive neighbourhoods around prime central London remain balanced and reliable. In 2016, Mayfair welcomed 25 percent more properties on the market compared to 2015, and 67 percent more than in 2014. Of these properties, there were fewer houses than previous periods, but the number of flats was up by 40 percent. Although property prices decreased in 2016, asking prices achieved were only down by a slight three percent.
Stability for uk property market not expected until 2018
Among the anxious nation, recovery is on the books for the UK property market. However, it is not projected to happen until 2018. House prices are due to fall by a further 1.5 in London this year before seeing any signs of recovering. The capital’s recovery is anticipated to be much more complicated than the rest of Britain, due to stamp duty and cost of living taking a greater toll on the area compared to other cities around the country.
Several northern cities have reported some positive growth on the market, despite the 12 year high in cost of living. Manchester, Birmingham, and Newcastle recorded house price growth of 8.8, 8.1, and 5.6 percent, respectively – none of which have seen rates as high since 2005. No stranger to the top of the price growth list, cities such as London and Cambridge have been falling down the ranks and reported rates of 4.9 and 1.7 percent.
Although the UK general election has left a cloud of doubt and unpredictability over the UK property market, 2018 is expected to accept stability and growth for a solid four years, even if a ‘hard Brexit’ is to occur.