House prices in the UK are forecast to increase by 2.5% this year and next with growth rising to 4% per annum over the following three years, to a five year cumulative amount of 18%.
But not all areas will see such robust growth, with the prime property market in London, for example expected to be flat this year, according to the latest forecast from property consultancy Strutt & Parker.
The best case scenario for the prime market in London is for it to pick up in 2019 with forecast growth of 4%, followed by 5% in 2020, and then 6% in both 2021 and 2022, a cumulative growth of 23% and thus outperforming the overall market.
However, the worst case forecast is for prices to fall by 5% this year, remain flat in 2019 then increase by 1% in 2020, followed by 2% in both 2021 and 2022. This would mean no growth over the five year period.
In the lettings market prime central London rents are forecast to be flat this year then rise by 1.5% next year, followed by growth of 2% in 2020 and a rise of 2.5% in 2021 and 2022, giving a cumulative expectation of 10% growth.
Overall, Strutt & Parker says that the residential market remains active as transaction levels for England and Wales are equivalent to this time last year, although levels in prime central London are below what they were last year.
It points out that while the fundamentals of the UK economy remain broadly positive, sentiment remains very cautious. Strutt & Parker has not changed its forecasts for the UK and prime central London performance since the last quarter of 2017.
‘Whilst Brexit negotiations continue and political and economic conditions remain uncertain, we have held our residential house price forecasts for sales,’ said Vanessa Hale, director of research at Strutt & Parker.
‘We maintain that from 2019 onwards it is extremely difficult to forecast the housing market with any certainly, but we would expect some bounce back and a return to growth once more stability has returned to UK politics and the economy,’ she added.
According to Guy Robinson, head of residential Agency at Strutt & Parker, after a muted start to 2018 the market is showing signs of life. ‘In a climate of fast property price growth and low stamp duty, the cost of moving previously seemed relatively inconsequential, but now, with higher stamp duty and lower house price growth, moving costs are extremely material in the whole event, and has had an impact,’ he pointed out.
‘People have come to terms with Brexit, and sellers should be preparing to act on plans put back from last year. As we move into summer, we are hopeful that a lift in confidence will see an increase in supply to meet current buyer demand,’ he added.
Total transaction levels for England and Wales look to be relatively equivalent to this time last year, the report also points out but in prime central London, despite transactions picking up over the course of 2017, they are now below what they were last year and are very low by historic standards.
‘Whilst some buyers may have been driven to look at investments in other sectors and abroad over the last few years, the impact of stamp duty and taxation as a whole on prime central London sales appears to have been absorbed by a reduction in asking prices,’ said Charlie Willis, head of London residential agency at Strutt & Parker.
‘While fewer properties are transacting than before, there has been a recent increase in competitive and sealed bids; and early signs that transaction levels and buyer confidence are rising. Buyers realise there will be more competition in the market the closer we get to a resolution on Brexit, and that they should make the most of fixed lending levels now, with further interest rate increases likely,’ he explained.
Strutt & Parker’s latest figures show that the take-up of new rental tenancies across the prime central London property market decreased by 11% in the first quarter of 2018 compared to the same period last year.
Kate Eales, head of residential lettings at Strutt & Parker, pointed out that although tenant demand has not fallen significantly, the supply of turnkey lettings property has. ‘Investors who turned to lettings 12 months ago are returning to the sales market, they have come to terms with more realistic pricing and are focused on a sale,’ she said.
‘The reason this is not driving pricing up is because this is only one segment of the market, the older, tired rental stock will continue to sit on the market with longer voids and potentially lower rents. The tenants that are out there in the market are more discerning than ever and want the best on offer,’ she added.