Stay the Course


The UK economy has had a turbulent 12 months or so, amid Brexit-related uncertainty, and this, along with stretched affordability, has stifled housing market activity in some parts of the country. But while it looks unlikely that the next few months will be plain sailing, today’s property market is well-insulated against any macro-financial situations that may occur.

In fact, despite ongoing challenges, there have been pockets of resilience, particularly in northern regions, the Midlands, Wales and Scotland, while the number of first-time buyers is rising, and it appears that following two years of price falls, the market in London is starting to bottom out.
Property values in the capital, especially in prime locations, have dropped to a level that is now more attractive for prospective buyers.

However, the number of new properties being put up for sale has plummeted. This dramatic supply-demand imbalance is starting to fuel modest price increases in areas like Putney and Fulham as competition ramps up, and this could be an indication of things to come.

With buyer momentum improving, transaction numbers are also increasing. The latest HMRC statistics show there were 101,170 residential transactions in January, up 1.3% year-on-year, thanks partly to a surge in the number of low-rate mortgage deals available.

“The fact that lenders have continued to tune their pricing and offer mortgages at ultra-competitive rates is helping the overall market stimulus,” said Brian Murphy at the Mortgage Advice Bureau.
Property prices have increased since the start of this year, up 1.8% in the three months to February to sit at £236,800, according to the latest Halifax data.

“The shortage of houses for sale will certainly be playing a role in supporting prices,” said Halifax’s Russell Galley. Property values look set to rise further, unless there is a sudden surge in new housing supply, which is improbable, given that the government’s target of building 300,000 new homes a year is unrealistic, with net additional housing in 2017/18 increasing by just 2% to 222,190.The housing supply shortage is also causing rents to rise across the country.

Rental market
With more people opting to rent, at a time when the supply of new private rental stock is dwindling, rents are seeing strong growth. The cost of renting a home in the UK is currently rising quicker than the rate of inflation, with the average monthly cost up 3.8% in the 12 months to February to reach £940 a month, according to the latest HomeLet Index.

Data from HMRC shows that total rental income has increased by 55% in the last five tax years to an average of £18.7 billion today, making buy-to-let property one of the highest yielding mainstream investments in Britain.

But rents are also rising in response to all of the extra costs landlords now face. Several tax and regulatory changes over the past couple of years, including the introduction of higher stamp duty purchasing costs and phasing out of mortgage interest tax relief, has inevitably led to a significant decline in the number of buy-to-let acquisitions.

Landlord investors took out just 5,100 new buy-to-let mortgages to buy property in December, down 5.6% year-on-year, while the total value of buy-to-let loans dropped by 12.5% to £700 million, the latest figures from UK Finance show.

To add, some buy-to-let landlords are actively reducing the size of their property portfolios or exiting the buy-to-let market altogether, with 120,000 more landlords having sold their buy to lets than purchased new properties since April 2016, reducing the supply of much needed rental homes, which is placing upward pressure on rents.

Some 78% of ARLA Propertymark members think the number of private landlords will fall further next year, driven out by rising costs. The alternative, analysts fear, will be that landlords pass additional costs on to tenants in the form of higher rents.

The Royal Institution of Chartered Surveyors estimates that rents are likely to increase by 15% over the next five years.

Making accurate and precise future predictions is currently a tricky task, given the political circumstances, but the market looks to be heading in an upward direction, with plenty of room for growth.