Activity levels on the UK real estate market are slowing down to a halt as political uncertainty rears its head once again. Since we are fast approaching the core of the prime buying season of spring and summer, Britain could face a major slump this year.
The year 2016 was an extremely eventful one, in particular on the political scene. Not only was stamp duty increased in March, but the memorable EU referendum took place in June, and the US general election occurred in November. Each of these three crucial issues caused major shifts in the property market and investor demand. And so it comes as no shock that the announcement of a snap general election in the UK, to be held on the 8th June, is causing hesitation among buyers and sellers alike and will likely continue to do so until the outcome is clear.
The repercussions of the EU referendum led to house prices falling continuously for the first time in four years and the average property price to reach a mediocre £214,140. New homes registered on the market also declined in number, with a 62 percent drop in London alone, and an average 15 percent drop across the nation.
September looked positive as prices started to rise and the Royal Institution of Chartered Surveyors (RICs) predicted the rise to continue for five years at a rate of 3.3 percent. However, the latest findings from a report by RICs shows that properties being added to the market are notably few in number due to the stamp duty increases. Potential buyers looking for new surroundings are reinvesting in their current homes as opposed to buying new in order to avoid extra fees. Landlord buying habits have also been slowing as their portfolio of properties have been carrying excessive additional costs, leading to a fall in investor demand.
House price growth drops while inflation rises
Unfortunately, despite the promising growth in September, property prices have started to fall again this year, with a 0.3 percent drop in March and a further 0.4 percent drop in April. With falling values and increasing inflation as the value of the pound falls, affordability pressures are also taking their toll on Britain. Inflation is expected to reach three percent in just a few months, and the average house price in the UK is currently six times that of the typical household income, and double that in London. This ratio is much higher than the previous rate of 4.3 times greater than household income.
Some of the more affluent neighbourhoods in prime central London are not feeling the pressures as intensely, and transactions have only dropped by 14 percent on homes priced above £500,000. Mayfair is one of the luxury districts which remains stable. Although property prices fell in 2016, there was 25 percent additional properties added to the market in 2016 than 2015. Of these, houses were down in number, but flats were up by 40 percent, and of the achieved sales, there was only a three percent drop in asking prices.
London set for a complicated recovery
Predictability and balance are not anticipated until 2018. Annual house price growth is currently at 2.6, the lowest since June 2013, and is expected to fall to two percent before the year end, which is over half the 4.5 percent annual rate in 2016. London is projected to decline by another 1.5 percent this year, before stabilising.
Manchester, Birmingham, and Newcastle have all reported growth rates higher than is usual for these areas at 8.8 percent, 8.1 percent, and 5.6 percent. These rates haven’t been experienced since 2005 and are in spite of the cost of living being at its highest in 12 years. London and Cambridge, however, have recorded rates at a much lower rate than is typical for these areas, at 4.9 percent and 1.7 percent, respectively.
The snap general election is likely to see the market at a standstill until after the results are revealed. However, rates are expected to grow from 2018 to 2022 at a rate of nine percent, even if a ‘hard Brexit’ occurs.
Sign up for regular property updates & receive investments in your inbox
Daniel Peacock