Political uncertainty is enough to put the entire real estate market on hold in the UK. Activity levels have already been reported to be slowing down and the usual prime buying season over spring and summer could be a major slump while potential buyers wait in anticipation of the general election outcome.
The last 12 months have presented three pivotal political matters to the market, with the EU referendum, stamp duty increase, and US general election leading to substantial shifts in the market and house price growth. People in the UK property market desire predictability and any changes to the political landscape can influence consumer behavior significantly. It comes as no surprise then that the announcement of the general election for the 8th June has resulted in a comparable repercussion and caused hesitation among potential buyers.
Following the EU referendum in June 2016, property prices were on a continuous decline for the first time in four years, with the average property value falling to £214,140. There was also a 15 percent drop in the number of new homes being registered in the UK, with a considerable 62 percent fall in London. September did see an increase in house prices again, when the market began to level out, with London growing at a 1.5 percent higher rate than the rest of Britain. It was predicted by the Royal Institution of Chartered Surveyors (RICs), that house prices would continue to grow from this point at a rate of 3.3 percent over the following five years.
However, RICs has revealed in its latest report that the number of properties entering the market is at an extremely low level, this is in part from the additional three percent stamp duty introduced in March 2016. Buyers are looking to avoid the extra costs by investing in their existing properties instead of purchasing new. Landlords are also slowing their purchasing habits as their current property profiles have increased in costs, with sizeable stamp duty fees, and therefore the demand from investors has weakened substantially. The general election overloads the concern in buyers and sellers and essentially puts the brakes on the whole property market across the UK.
Affordability and house price growth
Upon stabilizing in September from the impact of the EU referendum, the housing market looked set to get back on track with house prices rising and demand for property increasing. However, prices have started to fall again this month as affordability pressures across the nation take their toll.
With inflation on the rise and expected to reach three percent in the coming months due to the reduced value of Stirling, and weak salary growth posing itself as an additional issue, house prices across the country dropped by an average 0.4 percent. This decrease follows a 0.3 percent drop in March and is the first two consecutive month decline in almost five years. It also affected the annual house price growth, resulting in a low rate which hasn’t occurred since June 2013, at 2.6 percent. It is predicted to fall as low as two percent, which is more than half the 4.5 percent growth rate experienced in 2016.
Additionally, steep property prices, which are currently about six times more than the average household earnings in the UK, are closer to double that ratio in the capital and significantly higher than the prevailing rate of 4.3 times, have contributed to the uneasiness on the market.
At the top of the market, homes valued over £500,000 have received 14 percent fewer transactions. However, some luxury neighborhoods in prime central London, such as Mayfair, remain stable. There were 25 percent more properties entering the market in 2016 than in 2015, and 67 percent more than 2014. And although the number of houses entering the market was fewer in number, flats were 40 percent up. Property prices fell in 2016 but asking prices achieved in sales only saw a three percent drop.
Real estate market outlook for 2018
It is predicted that property prices will not stabilise fully until 2018, with prime central London likely to fall by another 1.5 percent in 2017, before starting to rise again. The recovery of London house prices proves to be more complex than that of the rest of the United Kingdom, with those located outside of the capital experiencing less of a shift in property values and stamp duty fees.
Although inflation in some northern cities has reached a 12 year high, Manchester and Birmingham have recorded healthy house price growth of 8.8 percent and 8.1 percent, respectively. Newcastle has also experience house price growth at a rate of 5.6 percent, of which hasn’t been seen since mid-2005 in any of these three cities.
For cities like London and Cambridge who are not strangers to the top of the house price growth list, they are experiencing a fall down the list, reporting growth rates of 4.9 percent and 1.7 percent, respectively.
Despite the decision to call for a snap election, house price growth is expected to level next year, with rates growing at about nine percent until 2022, even in the event of a ‘hard Brexit’. London is a popular location to invest in property by locals and international buyers alike. The city has a proven track record of delivering on investment, and that is not expected to change anytime soon.