25 Nov 2016
Author: Stephen Breen
It’s difficult to accurately predict what the property market might do over the coming years – particularly with so many global events leaving us with a high degree of uncertainty. The on-going saga of Brexit, the US presidential election and the forthcoming Dutch, German and French elections due to take place in 2017 may all effect how well the market performs going forward. However, there seems to be a general consensus amongst experts that while the short term may be a rocky road, things should be on the up from 2019.
The current picture
This month, Nationwide observed that UK house prices have stalled. The Building Society saw no monthly increase during October, for the first time in 15 months. They also noted annual house price growth had dropped from 5.3% in September to 4.6% in October. Last week Halifax said they had seen UK house prices rise by 1.4% in October – with annual growth dropping slightly to 5.2%. , Back in March, the Halifax recorded annual house price growth at a peak of 10%.
Although the figures differ slightly, the story is consistent – annual growth has dropped and we are experiencing a slowdown. However, the Halifax note that the referendum is not to blame – citing instead “mounting affordability pressures which have increasingly constrained housing demand”. Although in the short term house price growth may ease further, the excellent mortgage deals available and the shortage of properties should help bolster price levels. Nationwide similarly believe that despite the drop in growth, levels have remained relatively stable over the past 18 months with an average of about 5%. While house prices have increased by around 20% over the past 3 years, wages have only risen by around 6%. Consequently the average house will cost six times the average earnings – an increase from 5.3 times in 2013.
Short to medium term
Experts believe the on-going Brexit negotiations will impact the housing market over the short to medium term and are likely to hold both house price growth and sales. If a general election is called, this could also impact prices and growth negatively.
Commercial and Residential Property Services Company Jones Lang LaSalle (JLL) predict a 0.5% rise in house prices next year, 1% growth in 2018 and 2% growth in 2019. However, they note that the Brexit uncertainty could result in periods of volatility in terms of both business and household sentiment.
Countrywide predict that values will dip from 2.5% growth in 2016 to a fall of 1% in 2017, before recovering to 2% in 2018 – and then 5.5% in 2019. They believe once Brexit negotiations are concluded early in 2019, there should be a small bounce-back in house prices.
The high end property market has suffered since 2014 – after strong house price growth, it was hit by higher stamp duty and the 3% hike for second home buyers which also caught investors. Concerns about employment in the City post-Brexit and drastic currency fluctuations have exacerbated its woes. Year on year, transactions and prices have been down across all prime property areas in London. During the July to September quarter, buyers were able to negotiate a discount of 10.8% on average off the asking prices in prime London locations.
Savills has predicted a 9% drop in values across prime central London areas this year, with 5% drop across other prime London areas. However, Savills estimates prime central London properties will benefit from an 8% increase in house price values in 2019. For other areas – Scotland’s prime market for example, a growth rate of 0% in 2017 and 2018 is forecast, recovering to 4.5% in 2019.
JLL has offered a more cautious estimate – 1% growth in prime central London for 2018, 3% in 2019 and a more promising 5.5% in 2020.
Countrywide note that at least some of the slowdown that the markets are seeing is completely unrelated to Brexit. Higher stamp duty is one factor – but after several years of growth that has gone into the double-digits, confidence in future capital gain has weakened, which has reduced demand. Countrywide expect a recovery in 2018.
Savills predict a rosy 14% increase in property prices from 2017 to 2021 for the East Midlands, with a healthy 13% for the West Midlands, 12% for North West England and 10% for Humber, Yorkshire, and Wales. For North East England and Scotland, the prediction is a less positive but still healthy 9%. However, perhaps the rosiest forecast is for the East of England, which they estimate will see a 19% increase.
Number of sales
Most experts agree that there will be a fall in property transactions with so much uncertainty. JLL predicts a drop from 1.22 million transactions this year to 1.08 million next year (-11%). Savills predict a drop of 16% over the next two years to 1.04 million for 2018, before we experience a slow recovery. Savills believe the biggest drop will be in the buy to let mortgage group, which will decrease by a third by 2018 – resulting from the 3% stamp duty for second homes/investor properties hike.
There is also concern that house builders will be more cautious in their investments because of uncertainty. JLL predict a drop from 140,000 new houses built in 2016, to 134,000 for 2017 and 2018. This would cause the Government to miss its housing targets.
If Brexit negotiations are resolved in a way that is not too detrimental to our country, experts predict that long term house price growth will recover. JLL predicts in 2020 we will see house price growth of 5% across Greater London – which will rise to 7% for 2021. Elsewhere, they predict a slower recovery, with growth reaching 4% by 2021. The company expect the strongest growth outside of London to be in the North West at 18.1%, but estimate that overall the Country should see 13.1% between 2017 and 2021.
Savills offer a similar forecast, predicting 13% growth in house prices across the UK – although they believe the East of England will perform the best at 19% across the same period. Scotland is predicted to achieve 9%, whilst Wales should achieve 10%.