Political changes around the world have led to an unpredictable real estate market in the UK and a cautious attitude amongst potential property buyers. Activity levels have already started slowing down, and the entire market could be on hold for spring and summer, usually the prime buying season.
The anticipation of the upcoming snap general election is likely to cause the major slump to last until after the outcome is certain.
Over the past 12 months, there have been many changes in the government landscape, with three crucial political matters affecting the property market. The stamp duty increase, EU referendum, and US general election caused significant shifts in the real estate market and house price growth rates.
With potential buyers seeking certainty and predictability, these changes to the political scene can influence consumer behaviour substantially. The upcoming general election, due to take place on the 8th of June, has added to the hesitation among potential buyers and resulted in comparable repercussions to the prior issues faced over the last year.
The EU referendum in June 2016, resulted in property prices declining continuously, which hadn’t been experienced in four years, and average house values falling to £214,140 across the nation. The number of new properties registered in the UK also decreased by 15 percent, with a sizeable 62 percent drop in London.
It wasn’t until September that property prices began to increase again. Since this increase, the Royal Institution of Chartered Surveyors (RICs), predicted that prices would continue to rise over the next five years, at a rate of 3.3 percent.
The latest report conducted by RICs, however, has revealed a remarkably low level of properties entering the market; which can partly be attributed to the three percent stamp duty increase introduced in March 2016. Potential buyers are investing in their existing properties as opposed to buying new, in order to avoid the additional fees.
Activity among landlords has also slowed due to their property profiles rising in overheads and considerable stamp duty costs, leading to investor demand declining substantially.
The snap general election appears to be a breaking point, with the real estate market applying the brakes as buyers and sellers alike proceed with caution and concern.
House price growth trends, post Brexit
Although September looked promising for the UK property market, with house prices levelling out and demand for new properties increasing, affordability pressures continue to take their toll on Britain and property prices have started to fall again.
As the rate of inflation continues to grow and is predicted to reach three percent by summer due to the declining pound sterling, and weak salary growth adding further concern, house prices across Britain fell by an average 0.3 percent in March and 0.4 percent in April.
This decline has led to the first consecutive monthly decline in close to five years. Annual house price growth has also been affected, sitting at 2.6 percent, a record low since June 2013. It has not yet finished declining and is estimated to fall to two percent over the coming months, which is over half the annual growth rate of 4.5 percent in 2016.
Even with falling house prices, the average price tag is almost six times more than the income of a typical household in the UK, and even more significant in the capital, with the average property priced at 12 times more.
On the high-end real estate market, there has been 14 percent fewer transactions on properties valued over £500,000. However, some of prime central London’s luxury neighbourhoods, remain stable and have seen less drastic declines.
In 2016, Mayfair real estate had a 25 percent increase in properties entering the market over 2015, and 67 percent more than 2014. The biggest change that the district has seen is a decline in houses for sale and a spike in flats, with a 40 percent rise. Although the prices of properties decreased in 2016, achieved asking price on sales only fell by three percent.
Which districts will experience the biggest changes?
Market predictions do not see a stable property market until 2018, with house prices estimated to decrease by a further 1.5 percent in London this year, before experiencing a rise. With shifts in house prices and stamp duty costs being less dramatic outside of the capital, it appears that London will take more time to recover than the rest of Britain.
Some areas around the UK have recorded house price growth this year, in spite of the cost of living reaching a 12 year high in some northern cities. Manchester, Birmingham, and Newcastle each reported healthy growth for the first time since mid-2005, at 8.8 percent, 8.1 percent, and 5.6 percent, respectively.
More expensive locations, such as London and Cambridge, have fallen from their usual spots at the top of the house price growth list, reporting rates of 4.9 percent and 1.7 percent.
Although the announcement of a snap election has caused the market to slow, the property market is expected to balance itself out next year and grow over the next five years, even in the event of a ‘hard Brexit’.
London has always attracted investors from around the world and rarely fails to return on investment. It is expected to continue to be in demand moving forward and continue its track record.