UK housing market roundup and predictions for 2018

The UK property market in 2017 continued forward with slowed but stable growth. We review the key trends and factors that influenced the market in 2017 and take a look ahead to the coming year.

Row of houses in North London
Recently published figures by Nationwide show house price growth has remained in the 2-4 per cent range throughout 2017 putting the UK average cost at £211,156 in December, this marked a modest slowdown from the 4-6 per cent rates of house price growth recorded in 2016.

Residential property prices remain stable 

Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. However, this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed.Robert Gardner, Nationwide’s chief economist, commented, “As we’d anticipated, the housing market in 2017 followed a similar pattern to the previous year.“House price growth slowed, whilst building activity, completed sales and mortgage approvals for house purchase all remained flat. This has been driven by a squeeze on real wage growth and continuing uncertainty over the economy.“However, nationally, house prices in 2018 are likely to be supported by the on-going shortage of properties for sale, low levels of housebuilding, high employment and a continuation of low interest rates making mortgage servicing affordable in relative terms. Overall we expect annual price growth to continue in the range of 0-3 per cent at the end 2018. 

House sales continue to be active

Data from the Halifax showed the annual rate of growth moderated to 2.7 per cent from November’s 3.9 per cent. Ending the year, house prices in December fell by 0.6 per cent, the first monthly decline in six months. Monthly UK home sales exceed 100,000 for the eleventh month in succession. Sales have remained above 100,000 in all months of 2017.In November they reached 104,200, the highest monthly level since March 2016. In the three months to November home sales were 7 per cent higher than in the same period a year earlier. “As we’d anticipated, the housing market in 2017 followed a similar pattern to the previous year,” Said, Russell Galley, managing director, Halifax Community Bank. “House price growth slowed, whilst building activity, completed sales and mortgage approvals for house purchase all remained flat. This has been driven by a squeeze on real wage growth and continuing uncertainty over the economy.”
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Jonathan Hopper, managing director of Garrington Property Finders, commented on the Halifax report, “After ebbing and flowing throughout 2017, the annual rate of property price growth ended the year back at the modest level it hit during the chaotic weeks following the snap election.“But despite the slowdown in price rises, Britain’s property market is far from seizing up. More than 100,000 homes were sold in every month of 2017, and many parts of the UK ended the year with a spring in their step – with brisk demand firing respectable, if not stellar, price growth.“Yet it’s a different story in parts London, where a flight of equity is sucking the momentum out of price rises. On the front line we’re seeing a split between domestic buyers who are increasingly looking beyond the capital for better value elsewhere, and astute international investors who are capitalising on softening prices and the weak Pound to buy in some of the most prestigious postcodes.“A decade on from the financial crash, there’s an uncomfortable similarity in the ratio of the average property price to the average salary – with the Halifax’s data showing the multiple is now the same as it was when the market fell apart.“But despite the questions over affordability, 2018 is not 2008. Banks are better capitalised and continue to lend, and while the supply of homes for sale is tight in many areas, the market continues to flow relatively freely.“Nevertheless demand is accompanied by one overriding caveat – price sensitivity. With wages falling in real terms and rail commuters suffering inflation-busting ticket price rises, buyers face a balancing act when assessing value; and even the most determined are willing to walk away if the price isn’t right.”

Relief of pressure for first time buyers

Lee James Pendleton, founder director of independent estate agents James Pendleton, commented, “Even in the winter month of December, the UK housing market failed to suffer frostbite but prices did continue to gently chill.“Anyone hoping for a Santa Rally thanks to the Chancellor’s Stamp Duty exemption for first time buyers will have been disappointed.“In fact, instead of positive pressure on prices, the opposite is happening for those homes priced at just over £500,000 as vendors are forced to follow the crowd below the threshold where they are picking up their tax break.“For those able to capitalise it was an early Christmas present that looks set to keep on giving throughout 2018.”After the turbulence that followed the Brexit vote in 2016, there is a much calmer landscape now for the UK housing market.Colin Bradshaw, chief customer officer at TwentyCi, comments, “There are no seismic shifts year-on-year and the huge spikes in house prices that we’ve seen in some areas in recent years appear to have stabilised.“What is looking particularly positive is the marked increase in the number of people at every stage of the homemover process. Eleven per cent more people are planning to move, 27 per cent more are actively approaching the time of their move and there has been a 23 per cent hike in those who have just moved.“As homemovers inject billions of pounds into the UK economy for many months before and after their move this is great news for 2018.”

Regional variations in house price growth

The housing market in the UK continues to vary regionally, but 2017 was particularly marked by the seismic swing in momentum of price growth from the south to the north.Analysis from Zoopla revealed how the British property market has performed regionally in 2017 and found that property prices in Scotland increased the most over the past 12 months, rising by 8.44 per cent to an average of £191,915. This is followed by England where values have increased by 3.21 per cent to an average of £328,380. In Wales, the average home is now worth £185,378 – up 2.94 per cent since the start of the year.Regionally, properties in the East Midlands have seen the second highest growth rate after Scotland, rising in value by 5.82 per cent since January. This is followed by the West Midlands where the average home is now valued at £227,016 up by 5.75 per cent.At the other end of the scale, values have declined by 0.35 per cent in the North East of England, while prices in London and the South East of England have slowed in growth, rising by just 0.73 per cent and 2.21 per cent respectively over the past 12 months.Regarding the cooling of prices in London Ewen Bunting, head of sales at independent estate agents James Pendleton, said, “December may have ended with celebrations but no one will be punching the air at London’s performance last year. The capital’s final lap of 2017 was more sparkler than fireworks.“However, the first fall in prices in the capital for eight years was an early Christmas present for first-time buyers, as affordability and Brexit remain a major issues. “A generation of house buyers will never have witnessed places like the West Midlands becoming property hotspots while London struggles.

Increasing preference for rental property over purchases

House prices in 2017 not only saw momentum move geographically from the south to the north, but also from property purchase towards a preference for renting, a report from TwentyCi revealed. Manchester now has a ratio of 50:50 rental to sales properties and Newcastle has more properties for rent than for sale.London, however, appears to be losing its grip as the rental Capital of the UK, seeing fewer rentals compared to properties to buy, with rental’s share of the property market down 4 per cent on the same period last year.East Central and West Central London were affected the most, with rental’s market share down 14 per cent and 10 per cent respectively.All areas of central London have seen rentals fall in terms of both volume and market share, which was considered surprising for an international city that relies on a higher volume of rentals than sales.Independent property market analyst & commentator Kate Faulkner, commented on TwentyCi’s findings, “The big decline in properties for rent now in London suggests that the government’s anti-landlord, buy-to-let policies may have backfired. Instead of improving conditions for tenants, what we’re seeing now is a decline in the availability of properties for rent.“Although it hasn’t necessarily pushed up rental prices, is does mean that the growing population of renters now have fewer options than before.“Looking at London particularly, it’s difficult to see that the reduction in rental properties has translated into a ‘magic’ increase in the number of people buying homes; something which the government had hoped for.”

RICS predictions for 2018

House price growth in the UK is expected to come to a halt over the course of next year as the number of transactions reduces slightly, according to the RICS housing forecast for 2018. However, it should be noted that the national prediction includes price growth in some regions offsetting declines in London and the South East.The likely theme impacting the behaviour of the housing market over the course of 2018 is again expected to be demand pressures resulting from stock supply on estate agents books close to all time lows. As such, there are no signs that 2018 will see a turnaround in supply across the second hand market.Going forward, assessing sales activity, the market looks unlikely to breach 1.2 million sales in 2018 with political and economic uncertainty proving a hindrance as well as the lack of stock, stretched affordability, tax changes and interest rate rises.That being said, there is potentially some upside for activity stemming from changes in Stamp Duty. Following the November Autumn Budget, relative to other buyers, FTB affordability may improve slightly.However, with higher prices offsetting the tax saving, such a small change will have minimal impact in its goal of lifting home ownership rates. In overall terms then, RICS believe the policy change is unlikely to stimulate activity to any great extent.Tarrant Parsons, RICS economist, said, “Following a pretty lacklustre finish to 2017, the indications are that momentum across the housing market will be lacking as 2018 gets underway. With several of the forces currently weighing on activity set to persist over the near term, it’s difficult to envisage a material step-up in impetus during the next twelve months.“However, the fundamentals are not much changed from the end of 2017, so levels of activity should soften only marginally when compared to the year just ending. A real lack of stock coming onto the market remains one of the biggest challenges, while affordability constraints are increasingly curbing demand in some parts. Given these dynamics, price growth may fade to produce a virtually flat outturn for 2018.“That said, despite the recent interest rate hike, mortgage rates are set to remain very favourable, with the prospect of further rises seemingly minimal over the coming year. Alongside this, government schemes such as help to buy should continue to provide some support to sales activity.”
Relocate Magazine Winter 2017 front cover
The Winter issue of our magazine is now available.
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