Camilla Dell, managing director of Black Brick Property Solutions, said: “The market has continued to present challenges in 2018, with continued uncertainty over Brexit weighing heavily on clients minds.”
Following a year dominated by Brexit uncertainty, political instability, higher interest rates and more stringent mortgage regulations, there is only one thing that Jonathan Hopper, managing director of Garrington Property Finders, wants for the property market as we head into 2019 and that is “stability”.
“Two years of gnawing uncertainty about Britain’s post-Brexit future have chilled several regional markets to the bone,” he said.
However, in several formerly overheated markets, especially in southern England, some shrewd buyers are successfully acquiring properties at “large discounts” as prices soften, according to Hopper.
He added: “Astute buyers are flexing their muscles, capitalising on a window of opportunity that is likely to close in March, whether the government’s efforts end in no deal or no Brexit.”
According to HMRC statistics residential transactions were 8% lower in Q3 2018 when compared to Q3 2017.
The latest data from HMRC shows that property transactions in November dropped by 0.5% compared to the same month last year.
The seasonally adjusted figures reveal that there were 100,930 residential transactions in November, a largely unchanged figure from October but down from 101,410 in November 2017.
“2018 was never going to be an easy year for the housing market,” said Guy Bradshaw, head of residential at UK Sotheby’s International Realty. “Residential property transactions are incredibly susceptible to changes in stamp duty with huge peaks and troughs closely linked to the end of tax breaks and the introduction of punitive high rates seen over the last decade.”
He added: “We anticipate domestic buyers sitting on their hands in early 2019 as the government seeks to broker a deal between themselves and with the European parliament.”
Mark Peck, head of residential at Cheffins, is not surprised at the sluggish trend in the property market, given the current economic and political uncertainty and affordability issues, but he does not necessary expect it to continue.
He said: “Some purchasers have been reluctant to commit to buying until after the ramifications of Brexit become clearer, however this is likely to cause pent up demand which could lead to increases in value in 2019.
“Whilst the upper end of the market has been hit hardest by fluctuations, this is likely to be the sector which will bounce back quickest next year. Similarly, we are forecasting that sales for the best in class of rural and village homes are likely to increase as suppressed demand returns to the market.”
If demand does indeed improve anytime soon, it will be thanks in part to a surge in the number of residential mortgage products available, as lenders try to compete for mortgage business with a wide array of low-rate mortgage deals available.
Brian Murphy, the Mortgage Advice Bureau’s head of lending, commented: “Although buyer affordability is still stretched in some conurbations and at certain market price points, the fact that lenders have continued to tune their pricing and offer mortgages at ultra-competitive rates is probably helping the overall market stimulus.”
It would appear that transactions are being boosted by the fact that sellers are becoming increasingly realistic and recognise that values have been somewhat out of kilter with what many purchasers are prepared or can afford to pay, as reflected by the latest market snapshot from NAEA Propertymark, which shows that the proportion of homes that sold for less than the original asking price increased to a record-high of 88% in September.
“Some sellers are taking a reality check and recognising that the difference between sale price and purchase price is much more important than the headline figure,” said North London estate agent Jeremy Leaf.
New seller asking prices in November were an average of 3.2%, or £9,719, down on October’s figures, which is the steepest decline in prices over two consecutive months since 2012, according to the latest Rightmove House Price Index.
While it is not uncommon for new-to-the-market sellers to price lower in the run-up to Christmas, these price falls have been larger than usual, suggesting that there are more than just seasonal forces at play.
But while some sellers have dropped their asking prices to suit the change in market conditions, it is important to note that buyer momentum has not been entirely lost.
There are some signs that cheaper prices are tempting buyers back into the market, with Rightmove reporting that the number of sales agreed is down by just 2.1% compared with the corresponding period a year ago in spite of market headwinds.
“Certainly transaction numbers are always much more significant for property professionals than boom and bust house prices,” said Leaf.
But agents cannot ignore the headline figures about house price, with the latest data from the Office for National Statistics (ONS) revealing that annual property price growth across the UK increased by 2.7% in the year to October – the weakest level of growth for over five years, owed largely to a trend of falling house prices in London, although that should not mask a more resilient picture elsewhere in the country.
Paul Smith, CEO of haart, commented: “Yes, prices in London have fallen but it’s important to remember that Londoners are still having to pay £146,824 more to buy a home than those in the South East.
“With prices in some cities and towns in the North West, Yorkshire and the Midlands soaring by as much as 11% - all signs point to house price correction rather than a market that’s collapsing.”
“It’s looking unlikely that 2019 will be plain sailing. But today’s market is well-insulated against any macro-financial situations that may come our way.”
But despite Smith’s relative optimism, the state of the property market next year is likely to be largely determined by the outcome of Brexit negotiations.
Pie in the sky
A no-deal Brexit could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis, the Bank of England has warned.
The central bank fears that failure to reach a deal with Brussels – with no transition period to a new trading relationship – could spark an immediate economic crash, with GDP falling by up to 8% next year, the unemployment rate increasing to about 7.5%, interest rates surging to 6.5%, and property prices crashing by up to 30%.
But having already been criticised by respected economists Paul Krugman, a former winner of the Nobel prize in economics, and Andrew Sentance, a former member of the Bank’s interest rate-setting committee, the gloomy figures - certainly as far as house prices are concerned - have been broadly rejected by a number of leading property firms, including RICS, which dismissed the Bank’s prediction in the event of a disorderly Brexit as “implausible”.
It says: “Mainly, we would expect the Bank to cut interest rates and potentially restart quantitative easing in the wake of a no-deal. The analysis behind the 30% fall in house prices assumes the policy rate would be hiked to 5.5%.
“Nevertheless, a negative shock to the economy resulting from a no-deal outcome, expected by the majority of economic forecasters, would hit incomes and reduce demand for housing.”
While the trade body accepts that Brexit uncertainty is a major factor that is hitting the market across all price points, it ultimately sees affordability as the biggest issue that is likely to place further downward pressure on property prices.
“House prices are now a greater multiple of earnings than at any point since records began,” said RICS. “Such high house prices are shutting more and more people from accessing the market and forcing others to save longer for a deposit.”
However, the continued lack of supply and the fact that there are few forced sellers means that property prices are unlikely to crash.
Experts warn that the government’s target of building 300,000 new homes a year is becoming increasingly unrealistic as the latest data shows net additional housing in 2017/18 grew by just 2% to 222,190 units.
Official figures reveal there were 195,290 new homes built in 2017/18, up 6.4% on the previous year, a further 30,000 homes were created by converting offices and other non-residential space, 4,550 units created from the conversion of existing houses into flats, while permitted rights developments dropped fell 28% to 13,526 units.
Blane Perrotton, managing director of Naismiths, believes that weak demand and a lack of developer confidence amid Brexit turmoil has “slammed on the brakes, even in the engine room of the construction industry”, leaving the government’s housebuilding target in danger of becoming a “pipedream”.
With the government failing to address the issue of housing supply, there is a growing shortage of rental properties causing rents to rise in many parts of the country, and that trend looks set to continue in 2019 and beyond.
Rental supply drops
Undoubtedly, 2018 was another tough year for landlords. With so many tax and regulatory changes over the past couple of years, including the introduction of higher stamp duty purchasing costs, the scrapping of the wear and tear allowance, and the phasing out of landlords’ mortgage interest tax relief, there has been a significant decline in the number of buy-to-let acquisitions.
Landlord investors took out just 6,100 new buy-to-let mortgages to buy property in October, down 9% on the same month last year, while the total value of BTL loans dropped by 20% to £800m, the latest figures from UK Finance show.
The lack of competition from landlords for properties will inevitably reduce the supply of much needed housing in the private rented market at a time when some buy-to-let landlords are actively reducing the size of their property portfolios or exiting the buy-to-let market altogether, as reflected Belvoir’s Q3 Rental Index.
Belvoir’s CEO Dorian Gonsalves said: “Statistics show a slight increase of 48% to 52% of landlords selling up to three properties and a similar number of landlords selling between four to five properties compared to Q2. There was a decrease from 17% to 12% for landlords selling six to ten properties.”
He added: “Overall, our conclusion is that the number of landlords selling properties is increasing, albeit not at the rate that some research has suggested.”
More than three quarters - 78% - of ARLA Propertymark members think the number of landlords operating in the private rented sector will fall even further next year as they are driven out by rising costs.
“We’re all striving for the same end goal of improving the private rental sector for consumers, but the only thing which will truly create a better – fairer – market, is a dramatic increase in supply.”
Rents set to rise
Given that those landlords who remain in the sector are faced with continued legislative change and increasing costs, many are expected to pass the costs on to tenants in the form of higher rents.
RLA policy director, David Smith, said: “Many of those looking for a place to live are facing a perfect storm – good landlords not prepared to invest in new homes to rent, whilst those same people are unable to access home ownership sectors.”
According to Countrywide, weaker economic conditions, affordability problems for buyers and stringent lending conditions will inevitably lead to greater demand for the rented sector, at a time when supply is falling.
The company says that since the 3% stamp duty surcharge was introduced in April 2016, 120,000 more landlords have sold their buy to lets than purchased new properties and this is contributing to low stock levels in the rental market.
Many agents believe that the widening supply-demand imbalance will inevitably push up rents.
Countrywide estimates that rents are likely to rise 2.5% in 2019, followed by growth of 3% in 2020 and a further 2% in 2021.
A separate prediction report issued by RICS suggests that rents will increase by 15% over the next five years.
New level of uncertainty
As 2018 enters its final stretch, it is understandable that property experts are once again dusting off their crystal balls and attempting to predict what the coming year will look like for the residential property sector.
Property professionals and analysts are actually really good at getting the general direction of the market correct, but not so good at anticipating turning points, and given what is currently going on with Brexit, making accurate and precise future predictions is not just a tricky task at this moment in time, but virtually impossible.
- ARLA Propertymark
- Black Brick Property Solutions
- Garrington Property Finders
- UK Sotheby’s International Realty
- Mortgage Advice Bureau
- Jeremy Leaf & Co
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor and Editor of Landlord Today. You can follow him on Twitter @propertyjourno