Average UK house prices will remain flat in 2018, with punitive stamp duty levels, and continuing economic and political uncertainty, taking its toll on the property market, the latest forecast report says.
The interest rate rise is unlikely to disturb the housing market, but the combination of this, stamp duty, high moving costs and economic uncertainty could cause the market to slow further, according to the analysis from national estate agents Jackson-Stops.
It suggest that the Government’s housing policy inertia is effectively putting the brakes on growth and home owners will be more likely to remain and renovate than move and part with more money than they are currently willing, especially with less favourable mortgage rates.
‘Prohibitive levels of stamp duty have been a real drag on the UK property market over the last financial year. This fall in market activity can no longer be ignored and the Government must view the property market through the eye of the home owner particularly now The Bank of England has announced an interest rate rise,’ said Nick Leeming, chairman of Jackson-Stops.
‘With the Budget just around the corner, the majority of our branches hope for, but do not expect, Philip Hammond to address stamp duty reform, particularly at the top end of the market. If stamp duty levels weren’t causing so much harm to the million pound plus market nationally I think we would see an increase in liquidity at all levels,’ he explained.
He pointed out that while the Government has shown its commitment to helping first buyers get onto the housing ladder through initiatives such as Help to Buy and Help to Buy Isas, at the same time they are restricting those who want or need to move in the higher price brackets.
The report says that in London house price growth is likely to remain stable across 2018, with higher value homes at £1 million and above continuing to feel the strain of stamp duty and rents broadly flat but potentially seeing a rise of 1%.
The forecast suggests that tenants from the UK and abroad are prepared to part with more money for well located, exceptional quality homes, whilst properties at the lower end of the market remain vacant. Such homes are owned by landlords who are either no longer financially able or willing to spend time renovating and so remain without tenants, causing rents on more expensive properties to rise even further.
Leeming explained that this year the prime central London housing market was inundated with buyers and sellers taking a ‘wait and see’ approach, which had a detrimental effect on the fluidity at the lower to middle ends of the market as well as the top.
‘Punitive stamp duty rules can be blamed for this halt in transaction levels and if steps are not taken to reform the impact stamp duty has on the top end of the market, even just marginally, we cannot expect sales levels to increase or prices to change in 2018. Once the Brexit pathway starts to be paved by the Government, we do expect there to be a shift in activity levels. However, while the Government continues to find its feet in these negotiations the impact it will have on the economy remains uncertain for all,’ he said.
He believes that the rental market will be affected by Brexit as foreign employers start to seriously consider whether to relocate their staff to locations such as Dublin and Frankfurt. ‘We can expect to see an increase in young professionals currently renting in London becoming hesitant about renewing their 12 or even six month contracts and move back in with their parents while they wait for further clarity on the country’s economic position,’ said Leeming.
‘Major regeneration hotspots in the East and South East, such as Hackney, Stratford and Crystal Palace, are expected to see improved rental yields over the course of next year. The introduction of Crossrail will make these neighbourhoods increasingly appealing to both landlords and tenants,’ he pointed out.
In the country homes sector the report predicts sustained growth in the middle market where homes are valued at £500,000 to £1 million. Some branches in the West Country are predicting prices to increase by around 4% in 2018. In the South East overall sentiment from branches points to prices remaining stable.
The report adds that guide prices have reached a peak in some commuter areas and sellers will need to lower their expectations from 2017 levels if they want their homes to sell in this current market. Smaller, family friendly homes are likely to fare well again next year, propped up firmly by the lower end of the market and increased competition from families and downsizers.
Looking to the top end of the market, some branches in East Anglia have seen a spike in demand for £1 million plus homes since April, which is positive news when compared to almost non-existent activity in 2016, suggesting the market here is coming to terms with additional stamp duty costs and sellers are discounting their properties accordingly.
According to Leeming decent levels of demand will come from families moving out of London in 2018, after finding their homes in the capital are no longer making more money than them. He suggests that for those looking for a change in lifestyle, the Cotswolds remains a hotspot for families with parents wanting to increase the amount of time they can work from home, and give their children the best possible environment to grow up in.
Villages in established commuter locations in East Anglia and the South East will also continue to remain firm favourites with families, and some branches are reporting competition looming between this demographic and downsizers, who have the same dream home in mind.
In Suffolk, homes in coastal areas such as Woodbridge, Orford, Aldeburgh and Southwold, will continue to draw in a price premium, particularly if they are on the front row, while quintessentially English villages on the Suffolk and Essex border like Dedham and Polstead will see more families moving in.
Prices in the London and country new homes market are expected to remain much the same in 2018. The report suggests that there will be an increased demand from buyers for new homes to come complete with the latest smart home technology and high broadband speeds to facilitate the needs of those looking to work from home more regularly.
‘Now is currently a very good time to be a new build purchaser in London. The market has tempered over the last year and there has been a recalibration toward more owner occupiers purchasing new homes, whereas previously many, perhaps a majority, would have sold very early off-plan to investors,’ said Leeming.
‘We expect prices of new homes in London to remain stable across 2018, but do envisage the supply to be dominated by listed house builders. In central London, many of these developers have been focusing on acquiring new sites where resales are under £800 per square foot, which means we could start to see a shortage of higher value new homes launching to the market. Therefore, any new homes on the market for over £1 million should fare well, with buyers having to compete to secure a property in increasingly short supply,’ he explained.
‘The new homes market in the country continues to be driven by buyers looking for high quality and well sized new homes, valued between £250,000 and £750,000. Homes that require very little maintenance are particularly sought after by downsizers in the South West. However, there is currently a scarce supply, due to planning policy, which favours new homes in urban extensions or new towns as opposed to the country,’ he added.