Last year’s Brexit vote threw a lot of negativity around the doom and gloom of many areas of the economy, not forgetting the housing market. Market research from GfK quickly following the vote to leave, uncovered that six in ten individuals anticipated that the economic circumstance would get worse in the following 12 months. And when confidence is low and there is uncertainty about what the future holds, people tend to sit tight, resulting in the property market stagnating as both the supply of properties coming to the market and the number of people looking to purchase decrease.
While that might sound negative, it actually tends to be good news for the majority of people, particularly first-time buyers, investors and those trading up, as there are typically more deals to be had from vendors with a pressing need to sell. However, for those looking to downsize or to release capital from their homes, a slow market can result in a reduction in the equity in some properties.
So what has really unfolded in the ten months since the Brexit vote and what is the second half of the year likely to look like for the property market?
The first thing to acknowledge is that, generally, people’s reaction to a prediction of a fall in house prices has changed. Having gone through a tough period of house price falls during an extended recession, the house-buying population now seems more resilient and practical, with most homeowners viewing their home as, simply, their home and not worrying too much about a slight adjustment in its value. Investors these days tend to understand and acknowledge that the market will have its ups and downs. That’s great news, because it’s a sensible reaction to the natural movement of a 'typical' property market.
This more relaxed attitude may also have something to do with the fact that more than half of homeowners in England are mortgage free. That means they are well cushioned against house price inflation or falls and are far less likely to be forced to move because of fluctuations in the economy.
As expected, the property market has slowed slightly, although the latest data for April* still shows year-on-year price increases for England (+6.5%), Scotland (+4%), Wales (+4.2%) and Northern Ireland (+5.7%), demonstrating healthy, steady growth for the UK. 39 of the 108 regions and counties in England and Wales set record house price peaks in March, with the West Midlands seeing the highest annual growth.** However, property transactions are down slightly and, according to Rightmove, 74% of sales completed in April were under the asking price, indicating we are edging towards a buyer’s market.
The rental market is also looking stable, with every area aside from London and the South West experiencing steady annual rent growth. Although rents are rising, yields are dropping slightly across the board, due to the level of house price inflation, particularly in more expensive areas. While that might sound like bad news for landlords, in reality it means that if you factor capital growth into your ROI calculations, alongside rental income, you should still find yourself in a healthy position. If you have any concerns about the return you’re getting on your property investment, please contact us and one of our advisors will be happy to help clarify your financial position.
In terms of affordability, data from the Land Registry and Nationwide shows that property prices in three of the UK’s four countries are still lower than they were a decade ago. That means, far from property becoming increasingly unaffordable, as the media reports with alarming regularity, the opposite is probably true. And considering that mortgage rates are far lower than they were in 2007, with many at record rates, together with the amount of support there is currently for buyers from the government, it could be said that buyers are potentially in the best position they’ve been in for more than a decade. The exceptions to this are those looking to buy in the more traditionally fast-paced markets of major cities including London, Bristol, Cambridge, Oxford, Edinburgh and Glasgow. Although even these markets are seeing price growth slowing currently which is expected to continue into the second half of the year.
Predictions for the rest of 2017
Because of the current economic uncertainty, those who aren’t under any pressure to move may decide to delay making any decision until the outcome of Brexit is clearer. This would result in a reduction in stock levels and choice for buyers, but if the number of buyers drops as well, there could be bargains to be had for those who are keen and able to complete transactions with vendors who need to sell.
As far as the effect of the snap General Election is concerned, key organisations within the property industry - including ARLA and the Council of Mortgage lenders - are stating that while there has been a major drop in activity in the run up to elections, because of the unusually short timescale, it’s unlikely to have much impact at all. Post-election, if the Conservatives win in June, they are most likely to move forward with implementation of the plans outlined in their Housing White Paper.
Overall, taking data collected from the first quarter, together with the responses from both the public and industry professionals, the 2017 property market is looking just fine. Steady growth equals stability and, provided we don’t end up with a shock result in the General Election that throws the country into panic about our economic future, the housing market should see the year perk up throughout the later months.