The UK property market has remained firmly under the spotlight over the last month with latest trend data and price indices continuing to paint a picture of sustained activity during the early months of 2016.
However, a series of crucial political and economic factors may place a shadow over the market in the coming months and Garrington has already seen some early signs of a shift in sentiment amongst some buyers and sellers.
Mind the gap
Research data released by the NAEA last month reveals that the number of buyers registering with estate agents has increased by 21% since the start of the year. Equally, mortgage approvals increased by 5% at the start of the year to 74,581 from 70,221 approvals. Whilst this is partly down to seasonal trends, it is nonetheless a useful forward indicator of buyer intentions.
With stock levels remaining at historically low levels and estate agents only having a national average of 33 available properties, competition remains fierce for certain homes. This competition is particularly acute in the mainstream market where investors and first time buyers are chasing the same profile of properties. 29% of sales that have taken place so far this year have been to first time buyers according to the NAEA, closely followed by investors trying to beat the 1st of April proposed stamp duty hike.
The gap between market activity in the mainstream market and the prime market has become wider, according to Land Registry data released last month. Recorded sales volumes for homes between £500,000 – £600,000 have increased by 42% year-on-year as compared to a mere 8% for homes worth £1.5m – £2m.
The Prime Minister announced that the UK is to have a referendum vote on whether the country should stay ‘in’ or come ‘out’ of the European Union. Given that property is such a significant asset for many people, inevitable questions are being asked as to; what does this all mean for the UK property market?
Whilst nobody can accurately answer the question, particularly as there so many factors which still require clarification, Garrington believes some of the most crucial issues will be; the duration of time we have uncertainty, the London market and international buyers.
If the vote is to stay in the EU, the property market is likely to revert to form very quickly and as seen after the Scottish referendum the latent demand caused by the pre-vote uncertainty may trigger busy market conditions for the second half of the year. If however, the vote is to leave the EU – a so called Brexit – then the basis of the exit and whether trade agreements will remain are likely to significantly determine as to whether global financial markets and institutions will deem this as a ‘good’ or ‘bad’ Brexit.
One of the primary concerns surrounding a Brexit is the effect this will have on the London market. As the UK’s financial heart, London has around 12% of the UK’s population but accounts for around 25% of GDP making its success disproportionately important. Many commentators are already predicting a fall in London employment levels if the UK leaves the EU and with the average salary in the Square Mile standing at just under £50,000, losing 100,000 jobs could take £5bn from the UK economy, which would impact the whole country.
A possible Brexit also offers threats and opportunities for international buyers. For existing international investors already exposed to the London market, a possible fall in the value of their assets and sterling is prompting concerns.
For international buyers looking to enter the market, the recent fall in sterling against other currencies seen since the vote has been announced and together with the potential of further significant falls if we were to see a Brexit, could prove enticing, particularly for dollar based buyers.
A pause for thought?
Amidst the concerns surrounding the referendum last month, house price indices revealed a departure from recent trends. Nationwide and Halifax disagreed on the direction of house price movements last month, with Halifax recording a fall in values of 1.4%, whilst Nationwide recorded a rise of 0.3%. However both lenders are still recording positive growth in the annual rate of average price movement. Rightmove also revealed in February that the time to sell a property has increased nationally to a level not seen any time in the last 12 months.
Given the above and that housing supply levels have not improved significantly to re-balance demand, Garrington believes that affordability issues are ‘starting to bite’ in some locations, causing buyers to become more reserved in their purchasing decisions.
All eyes will be on the Chancellor, George Osborne, next week as he presents his spring budget on Wednesday the 16th of March. Of particular note will be final confirmation on whether the Government has changed any details surrounding Stamp Duty reforms on additional homes due to be implemented for the 1st of April.
Whilst the spring market is usually one of the busiest times of the year in the property market, there is a real possibility of seeing more subdued conditions over the next few months. For confident buyers looking to own a property for the medium to long term, this may be welcome news and present an interesting window of opportunity to make an astute purchase.