What a year it’s been! Back in 2016 we had Brexit, a new prime minister, Donald Trump’s election, and so when it came to expecting the unexpected, 2017 had a lot to live up to. But then there was an unanticipated snap general election, the unexpected result, and consequently what we have now – a weakened government with a resilient Theresa May at the helm. Surely 2018 is going to be a lot less eventful!
Political and economic uncertainty has contributed to what has also been a rather difficult year for the housing market, underpinned by a lack of stock, leaving many agents struggling to find homes to sell, while property prices have stayed broadly static - although there has been a divergence between house prices in different parts of the UK.
Higher stamp duty costs continue to have an adverse impact at the upper end of the market, most notably in London, the phasing out of mortgage interest relief has made buy-to-let a less attractive proposition for landlords, while the publication of the draft Tenant Fees Bill setting out the government’s approach to banning letting fees paid by tenant will hit some agents hard - 2018 promises to be another challenging year.
Jake Russell, sales director at Russell Simpson, said: “Nothing has been resolved in 2017 that won’t again rear its head in 2018. Brexit is still rumbling on, SDLT remains a sticking point at the higher end of the market and every week there is a chance the government could fold and yet another general election is called.”
But despite everything, the market has remained remarkably robust, according to Mark Peck, head of residential sales at Cheffins.
He commented: “As a year feeling the aftershocks of Brexit, Trump, changes to stamp duty, a snap election and various housing policy amendments, the property market has stood remarkably firm throughout 2017.
Richard Sexton, director at e.surv, concurred: “The property market as a whole has proved to be incredibly resilient. As we look ahead to 2018, we hope that the market continues to hold its own when faced with continued Brexit negotiations, ongoing regulatory changes, and proposed gradual interest rate rises.”
The number of residential property transactions increased by 0.6% in November compared with the previous month, according to the latest HMRC statistics.
In total, there were 104,200 housing transactions in November, which is up 7.1% on the corresponding month in 2016 on a seasonally adjusted basis.
There have been 1,127,450 residential property transactions completed to date in 2017, on a seasonally adjusted basis, which suggests that the market is entering 2018 on a rather solid footing.
Brian Murphy, the Mortgage Advice Bureau’s head of lending, said: “Demand for homes in many regions is still high, mortgages are still priced very competitively and we now have the chancellor’s SDLT exemption for first-time buyers which may see renewed activity at the entry level of the market over the coming months.”
It would appear that transactions are being boosted by a greater sense of realism among vendors, many of which acknowledge buyers’ hardening expectations of a discount, as reflected by the latest market snapshot from NAEA Propertymark, which shows that the number of homes which sold for less than asking price dropped to 78% in October.
Brendan Roberts, director, Aylesford International, commented: “Buyers are in no rush, they do not see market values improving and if anything there is a sense that ‘it may be cheaper tomorrow’, so unless they find exactly what they are looking for, and are confident that the asking price represents real market value, there is a reluctance to make any commitment.”
The annual rate of house price growth has remained in the 2-4% range throughout 2017 according to Nationwide, but the outlook for property price growth next year looks rather bleak, according to several experts, albeit with vast variation in the growth of property prices across the different regions of Britain.
The residential property market in 2017 was characterised by a striking difference in house price growth between the UK and London with national average growth in prices rising by 2.5% in 2017, according to Nationwide.
In contrast, prices in Prime Central London (PCL) have dropped by around 3% in the last year, while prices on a national scale have been fuelled by strong growth in the East Midlands, South West and West Midlands, which all saw increases of more than 4.5%.
Based on recent forecasts, the general view among agents is that residential property prices in the UK as a whole are likely to be flat, although some experts believe that they will rise in 2018, but only marginally. Some agents, though, are more bullish on seeing a return to sustained price growth in 2019.
Savills forecast that average UK house prices will increase by 2% in 2018 and 5.5% in 2019.
JLL forecasts UK house price growth of 2.5% pa for the next five years, while a recent Reuters poll of 28 housing market specialists suggest that house prices will rise by 1.3% nationally in 2018 - all price projections for 2018 are below the existing rate of consumer price inflation.
The latest figures from the Office for National Statistics show that inflation in the UK, as measured by the Consumer Prices Index, currently stands at 3.1%.
But while many commentators are projecting price growth for the UK, albeit below the rate of inflation, most are pencilling in zero growth in the South East and a drop in price in London.
Savills forecast a 2% decline in the capital, Rightmove estimate a 0.5% fall in prices, while respondents to the Reuters survey estimate that the average price of a home in London will drop 0.3% next year.
The market in London started to slow about three years ago, with prices at the upper to high end of the capital particularly vulnerable ever since the now former chancellor George Osborne decided to reform stamp duty in December 2014, making the property acquisition tax more expensive for anyone acquiring property worth more than around £937,000.
Prices have dipped in and around central London by as much as 10% since their 2014 peak, and could fall further, with a recession induced by Brexit still possible.
The markets in well-heeled areas have been particularly affected by Brexit and high levels of tax, with prices slowing following a period of rapid growth, which largely explains why so many homes were withdrawn from the sales market in 2017.
“2017 saw the number of transactions in London fall, as Brexit caused buyers to prevaricate and hedge their bets,” said Paul Cosgrove, director at Finlay Brewer.
But Cosgrove believes that the softening of prices in the capital will encourage buyers across all segments in 2018 and give the market “a real boost”.
He added: “In most price brackets, values are back to where they finished the year in 2013, so factoring in the still highly attractive currency swap for dollar and euro denominations, we expect the number of transactions to steadily rise in 2018 as price falls continue to peter out.”
Shereen Malik, senior sales negotiator at UK Sotheby’s International Realty, also anticipates that there will be a “slight uplift” in London’s housing market in 2018.
Although there have been several factors causing the uncertainty in the London property market, Malik reports that many buyers have started to adapt to the stamp duty levy on second homes and Brexit.
“These factors are now being accepted and those dedicated to purchasing a property in London will continue to do so,” he said.
However, north London estate agent, Jeremy Leaf, expects the market in the capital to remain sluggish.
He said: “Where prices have risen the furthest and fastest in the London property market, making it effectively overheated, we expect it to be relatively flat next year.”
Kames Capital’s David Wise expects to see a further correction in 2018.
“London is, as expected, showing signs of slowing down as the government works its way through the Brexit negotiations, and we believe the London market is at a late-cycle stage so we expect a correction/slowdown in the future, but not a crash.”
While the market in London continues to slow, regional hotspots are likely to be the drivers of UK house price growth in 2018 and beyond.
Strutt & Parker forecasts that property price in the UK will rise by an average of 18% over the next five years to 2022, led unsurprisingly by areas that are seeing high demand and low supply.
Hometrack projects that the recovery in regional cities could offset low nominal growth in London, pointing to the fact that those cities that have seen the weakest recovery since the market crash in 2009 are now enjoying the highest rate of price inflation.
Those areas include Leicester, Birmingham, Manchester, Nottingham, Liverpool, Glasgow and Edinburgh, according to Hometrack.
But while Ray Withers, CEO of Property Frontiers, accepts that the residential market is due what he described as a “profound refresh”, he believes that many secondary cities are blindly “lurching into oversupply” with developers responding principally to demand from investor-buyers rather than the renters and end-users that actually drive the market.
He said: “Something surely has to give: 6,963 units are currently underway in Manchester - more than double the previous record set before the crisis! At a time of downgraded growth forecasts and political uncertainty, that feels particularly precarious.”
The property expert estimates that less well-known but equally promising and enterprising regional towns, such as Halifax, Wakefield, Bradford, and Doncaster, will lead the way in 2018, not just in terms if house price growth but also rental price inflation, making them “next year’s buy-to-let hotspots”.
“Such places benefit from low entry points, an availability of strategically located development sites, weak competition from existing rented stock, and the promise of catch-up growth. Of course, they must always exhibit the classic market drivers as well: an uptick in jobs and population, new regeneration or infrastructure projects, among other factors.”
With the government consistently missing its housebuilding targets, Britain’s housing shortage has now reached crisis point, with the number of prospective buyers and renters dramatically outweighing the volume of homes on the market across most parts of the country.
The chancellor Philip Hammond acknowledged the growing problem in his recent Autumn Budget statement by making housing a primary issue and pledging to provide funds to support the construction of up to 300,000 new homes a year, in accordance with a recommendation made by the House of Lords Economic Affairs Committee in 2016.
Given that the latest Department for Communities & Local Government Housebuilding statistics show that annual new build dwelling starts totalled 166,100 in the year to September 2017, up 10% compared with the year to September 2016, while completions totalled 154,220, an increase of 9% compared with last year, the market appears to be heading in the right direction.
“It is clear that we still have a long way to go if we are to meet the government’s target of delivering 300,000 new homes per year,” said Craig Hall, new build manager, Legal & General Mortgage Club.
“However, given the focus in the chancellor’s Autumn Budget on addressing our housing crisis with a further £44bn funding over the next five years providing support for SME’s, developing construction skills and modern methods of construction, we should start to see significant improvements in the number of houses built in 2018 and beyond,” he added.
Making accurate and precise future predictions for any property market is difficult at the best of times, especially with several new mortgage restrictions and tax changes in the works, while the multitude of potential Brexit outcomes means there are several differing scenarios for the economy, which will ultimately have an impact on the outlook for the housing market, including housebuilding levels, residential transactions and prices.
From beefing up the planning system and reforming the existing house-buying procedure to an overhaul of stamp duty and reversing recent caps on second homeownership, there are a host of housing related issues that agents would like to see addressed, because what the market ultimately needs is for the government to provide effective policies that deliver radical change in 2018.
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno