Following the dynamic and shifting political landscape over the last 12 months, the announcement of a general election has enforced concern and anxiety in the UK property market, across the nation. Uncertainty has been lingering heavily subsequent of at least three crucial matters that have been presented on the political front in the last year. The stamp duty increase in March 2016 caused a significant impact on the market and buyer behaviour, and the EU referendum in June 2016 and US general election in November 2016 caused further hesitation.
The prime buying season is fast approaching, yet activity levels are already reported to be slowing down, leading to a potential major slump until after the UK general election, which is to be held on June 8th. Predictability is a necessity for potential buyers across Britain, and until they can be sure of at least a little predictability, buying habits are likely to take a backseat.
Property prices continuously declined as a result of the EU referendum last year, falling to an average value of £214,140. The number of new homes registered in the UK also fell, with a drop of 15 percent in the UK as a whole, and 62 percent in London. House prices started to rise again in September, with London growing 1.5 percent faster than the rest of the UK, and the Royal Institution of Chartered Surveyors (RICs) expecting this to continue at a rate of 3.3 percent for the next five years.
However, latest findings from RICs shows that new additions to the market are at an all-time low due to the increased stamp duty fees introduced early last year. Buyers looking to avoid the three percent rise are putting money back into their existing homes, rather than purchasing new. With increasing costs to their property portfolio, landlords are also reducing their buying habits, in turn, reducing demand from investors on the market. Until the market stabilises with some predictable direction, demand is not likely to increase anytime soon.
Affordability issues take their toll on the nation
Although September looked promising for property prices on the rise, affordability pressures are affecting households all over Britain. The average house price is currently six times higher than that of the average household annual income, and almost double that in London. Both of which are much higher than the previous 4.3 times, which has applied additional strain to potential buyers.
In addition to weak salary growth, the falling value of the pound is causing the rate of inflation to rise and is predicted to continue to do so until it reaches about three percent. House prices have begun falling again this year, with a 0.3 percent fall in March and a further 0.4 percent fall in April, making the first consecutive two-month drop in close to five years. Annual house price growth is also being affected, decreasing from the 4.5 percent growth rate in 2016, to 2.6 percent now, which is the lowest it has been since June 2013, and expected to fall even lower, to two percent, over the coming months.
Surprisingly, the more expensive end of the UK property market has managed to hold itself quite steady, with properties priced above £500,000 only receiving a 14 percent drop in activity levels. Some luxury neighbourhoods around London, such as Mayfair, had an increase in new additions to the market in 2016 compared to 2015, with a 25 percent increase. Although there were fewer houses on the Mayfair property market, there was 40 percent additional flats. Property prices did decline in 2016, however asking prices on sales were only down by three percent.
Property prices not set to stabilise until 2018
Although 2017 may present potential buyers around Britain with doubt and apprehension, the UK real estate market is anticipated to find balance in 2018. London is predicted to have a more difficult recovery, with an estimated 1.5 percent further decline in house prices this year.
Some cities in the north of England are experiencing their highest costs of living in almost 12 years, yet Manchester, Birmingham, and Newcastle have all reported robust house price growth rates of 8.8 percent, 8.1 percent, and 5.6 percent, respectively, none of which have experienced rates as high since 2005.
At the other end of the scale, cities such as London and Cambridge, who usually report the highest growth rates, are reporting rates as low as 4.9 and 1.7 percent.
Although the call for a snap general election may mean the UK misses out on a successful prime buying season in 2017, the future of the market looks positive from next year, with rates growing at around nine percent until 2022.