Where next for house prices?

The housing market and the golden era of buy-to-let bounty have stalled, and homeowners face the prospect of Brexit and a possible Corbyn government. Is the door closing on the property trove?

The sheer volume of data about the UK housing market that is bandied around these days means that it is sometimes hard to grasp what is really going on.

An innovative heatmap (below) produced by Samuel Tombs, UK chief economist at Pantheon Macroeconomics, provides a simple overview: it uses colours to show what prices have done in each region year by year: green for the biggest rise, red for the biggest fall.

In 2012, much of the country outside London is shrouded in deep red, in the wake of the financial crisis; a couple of years later much of the picture has turned shades of green. By early 2019, it’s London and the South East that have turned red.

UK regional house price heatmap

Pantheon Macroeconomics’ UK regional house price heatmap


The past few years have generally been a disappointing time for anyone hoping to make money from the housing market. For most of the country – with the main exception of central London – the recovery from the financial crash took a long time to get going and then petered out, thanks to the uncertainty caused by the Brexit referendum result in 2016.

The big questions now are: what will it take to get the property market back on the move, and will a general election, which many see as an increasingly likely prospect, re-ignite property sales, or put a further dampener on proceedings?

As the UK prepares to take up the Brexit cudgels once again under a new prime minister, anyone who has invested recently in or near the capital is likely to be feeling the pain.

According to Rightmove data in June, average asking prices were lower than a year ago in 28 of London’s 32 boroughs, reflecting the downward trajectory of selling prices.

At the prime end of the market, the negative trend has been longer and even more pronounced: prices in June were down by more than 19%, compared with 2014, according to estate agent Savills.

Few people outside the capital will sympathise with its property owners: London does after all have the most expensive homes in the country by a long way, and homeowners over the past 20 to 30 years have seen their property soar in value, creating endless paper millionaires.

Moreover, the picture isn’t that bad in many of the regions. Wales registered a 6.7% rise in average house prices over 12 months to £164,000, according to the latest (April) official figures from the ONS, while the East Midlands was up 2.9% and the North West up 2.6%.

Ray Boulger, senior mortgage technical manager at broker John Charcol, says: “During the late 1990s and the early 2000s, we saw two periods where London house prices recovered first, while it took another couple of years for areas such as the North and Midlands to start to catch up. I suspect we’re going through a phase like that now.”

Ask Money: will my idea for passing on a buy-to-let flat work?

Sustained tail-off in housing market transactions

Beyond the headline price figures, though, there are plenty of other indicators suggesting that the property market nationwide is not in robust health.

“The volume of transactions is pretty soft,” says Boulger. “Since 2014 the number of transactions has actually drifted down slightly; bear in mind also that over the past 10 to 12 years the population of the UK has increased by around 10% but the level of housing transactions is about 25% to 30% lower than it was at the outset.”

The number of agreed sales is still falling, according to evidence from RICS. Its May survey of members notes that “agreed sales continued to slip for a tenth successive month, with a net balance of -13% of contributors noting a fall.”

Other indicators corroborate the weakness of the market. There has been a slowdown: the average ‘time to sell’ (the number of days it takes from a property being launched to a sale being agreed) peaked in January at 77 days nationally, and 89 in London, according to Rightmove. In both cases, it is still taking longer to sell than has been the norm.

Jeremy Leaf, a north London estate agent and a former RICS residential chairman, says: “The housing market is in limbo, reflecting economic and political conditions – in other words, awaiting some direction one way or another. Prices and transactions have held up surprisingly well, though, and the market is proving fairly resilient. Overall, London has suffered more than most areas, as prices were getting out of control and buyers are now looking for better value, which they are increasingly finding outside the capital.”

A number of fundamentals suggest the market should be much more buoyant than it is, however. The housing shortage has not gone away, incomes are rising and mortgage availability is good. Loan-to-value ratios – the amount you can borrow as a percentage of a property’s value – have crept back up and 95% mortgages are now commonly available, says Boulger. Most lenders even offer access to their best rates to existing borrowers through a broker.

Affordability is a bigger constraint. He points out that the rules introduced by the Prudential Regulation Authority in 2014 have led to some borrowers having to take out longer-term loans to meet lending criteria. The market has been supported by the Help to Buy scheme, which is due to run until 2021.

UK house prices fall for first time in 2019

Political uncertainty keeps forecasters guessing

Nevertheless, uncertainty has undoubtedly played a part in holding back both buyers and sellers. Where we go from here is a moot point, given that it is impossible to predict the outcome of the Brexit process or whether a general election is in the offing.

Savills’ latest forecast is for a 1.5% rise in house prices across the UK during 2019. Samuel Tombs at Pantheon has come up with a similar figure, 1.4%.

Somewhat more optimistic is a forecast from website Reallymoving that prices will surge by 9% in the three months between May and August. The website uses ‘agreed sale’ data to predict prices ahead of the trend. Chief executive Rob Houghton says: “Our forecasts suggest that sellers are growing tired of the wait-and-see approach. Once the initial Brexit deadline passed at the end of March with no further clarification, sellers decided to press ahead with their moves.”

It’s pretty clear that there is little appetite on the government’s side for holding a general election anytime soon. The most likely circumstance that might lead to an election would be a failure to secure a Brexit deal by 31 October as planned.

Opinions are mixed on the likely impact of an election on the residential property market. Research carried out by property consultants CBRE during previous elections suggests that elections have less impact on the market than many might assume. CBRE’s publication, Uncertainty Unscrambled, published in the run-up to the 2017 election, reports: “Conventional wisdom suggests that property markets slow down in light of an upcoming general election. General elections are uncertain, and the property market doesn’t like uncertainty. However, we have found that property markets are, in fact, pretty resilient when faced with an election, with very little change to overall behaviour.”

Miles Gibson, CBRE’s director of research, says he thinks those views remain valid today, “with the caveat being that a general election held this year would be heavily influenced by Brexit”.

Many in the property world, though, see the risk of a Labour government led by Jeremy Corbyn as a far bigger problem than Brexit.

Jonathan Rolande, a director at the National Association of Property Buyers, warns: “An election would definitely stall the market for as long as it took for the current government to win. A Labour win would see a mass exodus by landlords, second-home owners and foreign owners, potentially flooding the market with property at a time when lenders would be tightening up criteria to see how events panned out. These are the ingredients needed for price free-fall.”

What could a Jeremy Corbyn government mean for your finances?

A Cobyn win could spook the market

What specifically worries many is the prospect – introduced in Labour’s paper Land for the Many, but not yet adopted as party policy – of Labour introducing an annual land tax or property tax, as already exists in a number of other European countries.

Trevor Abramsohn, at Glentree International estate agents – which sells some of the most expensive properties in London, says: “A neo-Marxist Corbyn government scares the living daylights out of the middle and upper middle classes. There will be a run on the pound and a flight of capital leaving the UK, the like of which we have not seen for 40 to 50 years.”

Marc Schneiderman, a director at estate agent Arlington Residential, has an equally trenchant view: “In my opinion, if Labour were to gain power, this would wipe 20% off values overnight and strike fear in the very heart of business, causing huge falls in the stockmarket.” He claims that some clients are already putting properties on the market in anticipation of a Corbyn-led government.

Boulger, meanwhile, says he thinks a general election is unlikely this year, and he can see one positive measure being proposed by Labour: the abolition of stamp duty land tax. “When the tax level is as high as it is, that’s a significant disincentive to move,” he says. “The greater activity generated by people being more inclined to move may well outweigh the loss of that revenue.”

Another more measured view comes from Mark Parkinson, a director at Middleton Advisors, who says: “Historically, property markets have done well under Labour governments, but there has not been such a left-leaning Labour Party for many years. Its proposed policy  of trying to regulate house price growth could have a detrimental effect on prices, as we assume it would deter investors.”

Between Brexit and the prospect of a radically different government coming to power, it’s a nail-biting time for property investors, even if is rather less worrying for those simply intent on living in their home for years to come. Depending very much on what course events take, some may look back on the “soft” market of 2019 with a degree of nostalgia.

Over half of Help to Buy users could have bought without help

How the older generation can help first-time buyers

Gift a deposit. If you can afford to, you can gift any sum towards a deposit on that first home. You can give up to £3,000 a year without breaching your annual tax exemption. Gifts to family members are not subject to income tax.

Guarantee a mortgage. Offering to become a guarantor of your child’s mortgage could make all the difference to them getting a loan. You don’t have to contribute anything unless they fail to keep up their mortgage payments, in which case the security of your own home might be on the line.

Hand them an early inheritance. A larger sum towards a property purchase will be exempt from inheritance tax if you subsequently live for at least seven years. However, it will count towards your £325,000 nil rate band, which is exempt from IHT.

Start a savings account. Start the saving process early by opening a Junior Isa or similar savings account for your child when they are still young, such as The Shepherds Friendly Junior Isa. This account requires a minimum deposit of £100 or monthly payments of at least £10 a month, up to £4,368 in the current tax year. It is invested in a range of assets and returns about 3% a year.

Buy a property in joint names. If your offspring can’t get the full mortgage they want because of the affordability rules, put in some of your money and let them pay you rent. As with any joint ownership, you’ll need to be clear what the rights and responsibilities of each partner are.

Second-stepper syndrome: the property problem that’s overlooked

Buy-to-let landlords: sell up or soldier on?

Landlords have faced an unprecedented mauling from two Conservative governments, which have imposed additional stamp duty on second homes, curtailed tax relief on mortgage interest payments and introduced a raft of measures favouring tenants, including the abolition of letting agents’ fees and the planned abolition of Section 21 ‘no fault’ notices to end a tenancy.

Anyone looking for comfort from a future Labour government would be swiftly disillusioned, though, as in Labour’s Land for the Many policy document a key section headed ‘Ending the buy-to-let frenzy’ advocates rent controls and stricter regulation of mortgages.

Ray Boulger says: “Its policies would treat buy-to-let investors extremely harshly and put new buy-to-let investors off if they are ever put in place.” Of existing policies, he says: “The 3% stamp duty land tax increase is something landlords can live with, because you can factor that into your calculations and pay a bit less to buy a property. What’s particularly onerous is the fact that you can’t offset all of your mortgage interest against income tax.”

However, Ian Wilson, CEO of the Property Franchise Group, the UK’s biggest lettings agency group, says: “The idea that there is a massive exit from buy-to-let at the moment is mistaken. New mortgage numbers have fallen from around 180,000 a year to no more than 70,000, but it’s still positive, and people are still investing.”

While interest rates remain low, many landlords will find a way to live with the squeeze on mortgage relief, which comes fully into play in April 2020. Those with bigger holdings have the option of putting their properties into company ownership. Nevertheless, the golden era of buy-to-let is undoubtedly over.

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