The events of 2016 gave everyone plenty to think about, and have resulted in quite the spread of predictions for the UK Housing Market in 2017.
The main two influencing factors were stamp duty hikes, introduced in 2015, and the result of the EU referendum. Immediately in the wake of Brexit the pound took an enormous hit, falling overnight to its lowest point in 31 years. This caused many to envisage a worst case scenario, one encompassed by yet another severe economic recession. This would result in increasing unemployment rates, denting mortgage affordability and the viable demand for houses. In parallel to this, we would see a steep rise in the number of people defaulting on their existing mortgages, causing a surge of repossessed homes to flood the market, pushing prices further downwards. Luckily, so far these predictions have been proved wrong.
However, the key issue going forwards remains the uncertainty shrouding the housing market and the economy more generally. This is reflected in the multitude of conflicting opinions and predictions from surveyors, developers and building societies alike. As is common practice, experts will look to the London housing market as a microcosm for guidance on the impact on the rest of the country. Yet, many have said even this longstanding method could be unreliable due to London being disproportionately sensitive to shifts in the financial services and exports sectors.
Despite uncertainty, growth is predicted to continue, just a slower rate. This comes after a sharp fall in 2016; this was the first year since 2008 to experience growth rates under 4.5%. Rics has forecast growth to slow to 3% in 2017, with figures from the Office for Budget Responsibility this month confirming this trend. This is partially due to top-end growth slowing, thanks to the impact of stamp duty. Savills reported that at the end of 2016 prices of central London homes were down by 9%, a figure reflected in ‘luxury market’ homes across the country. This has prompted some interest from foreign investors, taking advantage of the weak pound. There has been a pique in interest from domestic buyers too, those who previously wouldn’t have considered central London prices to be within their reach.
Some are claiming that the London bubble is soon to burst, after huge growth rates in recent years causing the market to become ‘overheated’. Predictors have cited the appearance of brand new developments in highly sought after areas, such as Battersea, coming onto the market for just £3.5million as evidence of this. These apartments are positioned as a downsize for wealthy homeowners in central London, but do not seem indicative of a London housing market collapse.
Conflicting figures and opinions have become commonplace in the housing market, especially in the last few years, but OBR reports in March stated that growth should pick up again in 2019. The delay on this growth is chiefly linked to factors previously explained, but also to a predicted 0% increase in disposable income in 2017. This presents a slightly stark future for those hoping to enter the housing market. The hope is that growth, although slow, will be propped up by ongoing shortages of properties for sale, low levels of housebuilding and exceptionally low interest rates.
Housebuilding is an area receiving much attention currently, with rates up 4% in 2016, the highest we have seen since the crash. The increase in this rate is encouraging, especially considering the housing crisis the country currently faces. The House of Lords called for 300,000 new homes to be built in England per year, and to hold local councils and governments accountable to developing plans for this bid going forwards. Inevitably, economic uncertainty amongst other factors will delay this. Housing developers have also announced plans to reconfigure many new builds so that apartments are smaller and cheaper, benefitting average home owner and first-time buyer budgets. However, it is unlikely that 2017 will be the year that first-time buyers stumble across a solution to their woes. Hopefully government schemes will continue to support this corner of the market, especially as they underpin much upward movement. Recent reports have commented on the difficult situation this group faces, with some saving for 10 years before they can get on the property ladder, whereas many will rely on the bank of mum and dad.
The effects of Brexit are expected to be felt most severely in London, but there are predictions for Brexit to trigger growth outside of London. A lift in house price is predicted in strong export areas, such as the West Midlands. There is hope that this will work to close the North South divide, with growth rates already noted to be rising in areas like East Anglia and the West Midlands.
The introduction of stamp duty was hoped to reduce buy-to-let purchases, opening up the market to first time buyers. However, many have criticised this approach, stating that it is the difficulty getting a mortgage, not landlords, which inhibits first home purchases. Still, buy-to-let purchases have slowed significantly since the stamp duty hike, after the initial rush to buy before the changes came in. Countrywide reported London rents falling, with November rates 0.7% lower than the year previous. This is likely due to a trend for more inhabitants per household, meaning a decreased share of rent per person. Predictably however, other industry bodies have contradicted these figures, citing a rise in rent price in line with higher earnings growth and constant demand. Many media speculators and commentators have also noted the possibility of Airbnb listings pushing up rent and house prices in desirable areas and boroughs across the capital, although hard evidence for this trend is lacking.
It is clear that there is a great deal of uncertainty in the future of the housing market, but a few things are well established. Firstly, growth will be slower for the coming year, due to Brexit and stamp duty increase. Secondly, growth will still be present and may occur in areas previously unexpected, such as export-focused hubs in the North; whereas the luxury market in London will see decline. Thirdly, rent prices look set to continue upwards, although may stabilise relative to recent years. Finally, housebuilding remains an urgent priority for the UK, both for first time buyers at all levels and those in need of affordable housing. These changes will affect every household differently, so don’t hesitate to talk to an expert about your future and what you can do to secure it.