With the latest trends impacting property prices, we take a look at what can be expected in 2018, and where these effects are felt the most. These are just some of the questions often asked by our clients, so hopefully we’ll provide an answer and give guidance where solutions are possible.
THE BREXIT VOTE
There have been some surprising developments in the property market over the last few years and as the marketplace changes so do people’s attitude to property, and what they need/expect from an investment. The UK property market has had to endure significantly more than other international markets over the last few years, with political and economic instability surrounding the Brexit vote.
Foreign investors were initially scared off by the Brexit vote, leading to a period when demand virtually dried up. However, once the dust had settled and the currency hit all-time lows, interest began to resurface, and within 6 months of the vote taking place, there was an unprecedented demand from foreign investors taking advantage of the move in the currency. In some cases, this meant that properties they were looking at ahead of the vote now were deemed to be an exceptional value, with as much as a 30% reduction in prices. This interest has now remained despite sterling gaining in value, although the currency is still around 15% lower than it was pre-vote.
THE LIFESTYLE CHANGES
Changes in the way people live have also now begun to impact on the property market, there are a generation of millennials that for a number of reasons are now more reliant on the rental market as the option to spend their money on life experiences, as opposed to burdening themselves with a mortgage, creating a generation that is prepared to rent for life. Divorce rates are higher, leading to an increase in single occupancy households, life expectancy rates are higher all adding to pressures on the supply of property, and thus prices, hence all of the above has led to a lack of affordable housing, which in turn leads to an increase in the demand for rental property.
THE COMMUTER INFLUENCE
So far we have looked at Brexit and lifestyle changes, so what else has begun to impact on prices over the last year or so and likely to impact further in 2018? Simply put, infrastructure projects. In London, it has been seen that if your property is near a tube stop then that can add thousands to the price of your property. This phenomenon can be seen around locations impacted by the HS1/HS2 and also Crossrail, where prices in the affected areas have risen dramatically as these projects create new commuter hubs. The effects of these 2 major projects started a few years ago when they were announced, but have continued to push prices higher as they are delivered, and will only level out once they are done and the full impact is felt.
There is another story based around commuters that has begun to influence house prices, and that’s the emergence of a generation of super commuters, people who generally work from home as technology now allows people to work remotely. This means that those people may only visit the office once or twice a week and are therefore free to live further afield, again creating new commuter hubs, as people move to more remote areas looking to better their lives. From this, as technology continues to improve, this phenomenon will play a bigger role in the impact it has on house prices moving forward.
THE MORTGAGE RATES
Another major driver on prices is, of course, mortgage rates, and any hike in rates will have an immediate impact. So far 2018 has had low rates of 0.5%, but it was expected up to a week ago that these would begin to rise very soon as the economy recovers and inflation begins to increase. However, the market conditions have shifted a little and this has meant that the expectation of a rate hike in the next month or so has now been negated, and it looks like rates will remain low for some time to come, well, at least in terms of a very modest hike by the end of 2018, and not a dramatic shift upwards. This, in turn, allows lenders to keep their mortgage offers low, and which encourages people to continue to borrow and keep the demand high for property.
Most of what I have spoken about thus far has been impactors that keep the pressure on prices, and with demand remaining relatively high, prices push ever higher. Mindful of this, the government has been placing pressure house builders to increase supply and start to use the land they have stuck in land banks. The government has also looked at the demand side of the equation, and in an attempt to try and deter too many buy to let investors coming to the market, have introduced a series of measures aimed at stemming this demand. With this in mind, the increase in supply, and lesser demand from investors, prices should steady out and possibly drift lower. However, with the government Help to Buy scheme still in place and the abolition of SDLT for first time buyers on a property up to £300k, the increased affordability of the first time buyer will support the market’s levels, meaning prices will not drift too far before demand steps in.
THE MAIN TRENDS
So what are the main trends that we can expect for 2018? In general, prices remain steady, with key regeneration areas and areas linked to large infrastructure projects continuing to attract great interest and keeping prices elevated. With an environment where house builders struggle to meet demand and in an era of unprecedented low rates, despite all efforts to control prices from the Government, we expect prices and the property market to continue to flourish, with a few small exceptions, and one of these may well be London where we can still expect to see a drop in prices as affordability and the gap created by the moves in that market over the last few years begin to unwind a little.