In June last year, the UK took the decision to begin to leave the European Union. Pundits leading up to the referendum projected that house prices would crash.
Whilst this has thus far proven incorrect, there are still signals of the necessity for wariness when moving forward. Just before an election that could shape the next two years of negotiations, we take a look of the state of play and where the UK property market is potentially headed in the near future.
The Lay of the Land
In general, house prices have made little movement from their positions in early 2016, with slight increases being seen across all UK regions but the rate of increase slowing. Despite this, the second half of 2016 saw UK housing transactions down 9% on the same period in 2015 according to HMRC. Whilst this decrease is minimal, it shows the early signs of an uncertain market. Those looking to sell in the next few years should probably start thinking about taking advantage of current prices more and more before the market sees a real reduction take place.
The biggest factor, which is yet to really rear its head, will be inflation. The continued slump of the pound against other currencies has led to more than 50% of UK firms saying they will likely raise prices over the next 12 months because production and distribution networks overseas have now become more expensive. The knock-on effect will likely be that property prices decrease in order to stem the flow, which is good for potential buyers. In certain regions of the country where prices are already relatively low, first-time buyers could flourish. Due to the low current supply of flats & smaller houses though, prices should remain steady for the time being.
Mortgages appear relatively unmoved at present, having been decreasing consistently for the last year or so. Whilst things currently remain competitive, any increase in base rates from the Bank of England, even from the current 0.25% to just 0.5% could potentially impact confidence moving forward, purely on a psychological level.
Since the referendum, there has been a decrease in companies relocating to commuter zones. These tenants generally won’t pay much more than the asking price. Weak demand could therefore subdue prices if not reduce them altogether. However, in areas being linked by upcoming Elizabeth Line and HS2 projects, namely Berkshire and around Birmingham, prices will likely be stable if not actually on the rise due to increasing demand for access to those routes.
London property price growth is now at its lowest level in 4 years, although this is small comfort for aspirational buyers as growth still remains a healthy 5.6%. It is however being outstripped in growth terms by other UK cities like Manchester and Bristol. For the foreseeable future, London is still a sellers market. But later into upcoming Brexit negotiations and as the Article 50 time period draws to a close in 2019, London property will become much more accessible to buyers – in particular those struggling to get on to the ladder for the first time.
Central London is continuing to attract global investment, the biggest centres for this being the West End (£7.8 billion) & the City (£8.07 billion). In particular, Asian and Middle-Eastern investors make up an increasingly large part of this, accounting for 33% and 14% of total annual turnover for 2016 respectively. This is because of the more favourable exchange rates between Sterling and themselves brought on by the UK’s EU referendum.
In all, the property market is in a settled state. However, it remains very open to impact from a number of factors. The market should be vigilant of decreasing demand in the face of inabilities to the right housing to the right places in the right quantities. London prices will continue to grow thanks to the renewed enthusiasm of overseas investors & buyers.