Home truths: house price rises to slow to trickle as Brexit and stamp duty hit

0
45

Bungalow for sale on the Holms of Stromness, Orkney.

Ongoing uncertainty over the manner of the UK’s departure from the EU is likely to weigh down the property market in 2017, say experts, who predict little or no growth in prices amid a slowdown in sales. The Brexit referendum result and government measures to cool the buy-to-let market have hit the property market in 2016, and are expected to keep the lid on house prices next year too.

In the immediate aftermath of the Brexit vote, the Royal Institution of Chartered Surveyors reported that large numbers of buyers and sellers had withdrawn from the market. Its most recent report showed the number of homes on estate agents’ books remaining low. Figures from HM Revenue & Customs show transactions surging in March before higher stamp duty rates were imposed on second homes, but these have now fallen to lower than in 2015. In August, for example, 96,720 sales were registered, compared with 104,280 a year earlier.

Tom Sharman, head of real estate finance at NatWest, said he expected sales to be slow going into 2017 as potential buyers and sellers awaited clarity on the EU negotiations. But he added: “High employment, tight supply and a healthy mortgage market mean a widespread decline in prices seems unlikely.”

Richard Donnell of property consultancy Hometrack expects transaction numbers to fall by more than 8% in some parts of the UK, including London. He said the capital had lost its status as property powerhouse over the past year. “There has been a noticeable pick-up in large cities such as Birmingham and Manchester, where prices are rising well ahead of earnings – at close to the national average of 8%,” he said. “The outlook for house-price growth in 2017 will depend on how much growth is sustained in regional markets, and the scale of the slowdown across London.”

Property firm Knight Frank said London and the wider UK market had exceeded expectations since June’s vote, but thought economic uncertainty would lead to weaker growth in 2017. Forecasting a 1% rise in prices across the UK in 2017, and a 1% fall in London, it said consumer confidence would be hit when the UK formally served notice to quit the EU, which it is set to do within the first three months of next year.

Outside the capital, according to Knight Frank, prices in Wales were expected to flatline, while all other regions would see growth, although the biggest rise in prices would be of just 2% – in the south-west of England.

Savills, the upmarket estate agency, has predicted that the property market as a whole will flatline in 2017, although that headline forecast disguises variations around Britain. In the south of England, prices are expected to continue to rise, with the east of England seeing the highest growth, of 2.5% over the year. London and the East Midlands would be static, it said, but in the north of England, Wales and Scotland there would be falls.

Unveiling the forecasts earlier this month, Lucian Cook, head of residential research at Savills, said Brexit was “complicating a natural shift towards the later stages of the housing market cycle, when the strongest growth is seen beyond London and the south-east. What is clear is that the housing market does not like political and economic uncertainty, and this points to a lower-growth, lower-transaction market across the board.”

Prices in London’s most expensive neighbourhoods have been falling since late 2014, when new stamp duty increased the cost of the most expensive properties. The higher stamp duty on second homes knocked buyers’ appetite further, and the referendum has led to even more uncertainty. By Knight Frank’s reckoning, prices in Notting Hill, Kensington, Chelsea and other parts of what it calls prime west London have fallen by 7% this year.

Henry Pryor, a buying agent for wealthy clients, said that since the referendum his inbox had been full of emails offering properties at a reduced prices. “In 30 years of buying and selling, I have never witnessed such a good time to negotiate a great deal,” he said.

Pryor said he expected the slowdown in London would “ripple out along the M4 and up the M1. It may not reach Norfolk and Shropshire until next summer, but the sellers’ market is turning into a buyer’s market.”

Another buying agent, Tracy Kellett, said she had seen an increase in estate agents offering sales behind the scenes. “I think this is to test the market, without the properties getting stale,” she said. “It’s a strong indication that agents don’t know where the market is.”

Kellett said she did not thinkers sellers in prime London were desperate, “but those who want to sell are aware that they may not get what they would have done two months ago – and will get even less in another two months.”

High-end building firm Berkeley Homes said last week that between May and October demand for its upmarket homes in London and the south-east was 20% down on the same period in 2015. The firm’s chief executive said the fall in volume was due to higher stamp duty – “an extraordinary attack on buy-to-let landlords” – and the uncertainty caused by the Brexit vote.

Islay Robinson, of Enness Private Clients, a mortgage broker with offices in Mayfair and Hampstead, said 2017 “could be the year in which we call the bottom of the market”. There had been a slowdown in the market, he said, particularly at the top end, and activity was unlikely to pick up until confidence returned. “This is what happened in 2008: after a short period, experts recognised the bottom of the market and activity started to return as buyers who were holding off began to transact again. Agents are beginning to speak of glimmers of life in prime central London, so we hope that in 2017 people will realise that the market has no further to fall, and they will be driven to invest in London.”

Robinson said elections in France and Germany in 2017 could have an impact on the London market. “We have seen large amounts of French investment in London in recent years and could see more in the event of [Marine] Le Pen’s – nicknamed ‘Madame Frexit’ – success.”

One thing is certain about the UK housing market: it will go on being vexed by events in the EU next year.

HOT PROPERTY

Two private islands, a six-bedroom bungalow and 12.5 acres with majestic views of sea and mountains, all for £300,000. With a home like that selling for less than a small flat in a grotty part of London, it’s not hard to see how Orkney became Britain’s hottest property market in 2016.

House prices in Orkney rose by 20.6% in the year to September, according to Land Registry data, faster than anywhere else in the country. Its capital Kirkwall (population 9,000), 530 miles from London (population nearly 9 million) topped the price rise table, while the London Borough of Westminster flopped towards the bottom.

At £143,839, the average property price on the islands is still well below the UK average of £217,888, never mind Westminster’s £961,686. But your money stretches a tad further. Around £200,000 buys a detached period home with beams and stone floors, while just £70,000 bags a rustic cottage close to an idyllic sandy beach.

Andrew Bonner of estate agent Low attributes the mini-boom to a bounce in confidence since the independence referendum in 2014 – plus an influx of southerners seeking a life change.

“Before the referendum, people were holding back, maybe nervous about the outcome. But once the result was clear, the market recovered. We also have a lot of people who have come from south of the border, looking for a change in lifestyle.”

He adds that the ONS figures for Orkney should also be taken with a pinch of salt, as the number of transactions in any one year is low and the sale of just one or two high-price properties can distort the averages. Between 25 and 30 properties a month usually change hands across the 70 islands that make up Orkney, compared with more than 1,000 a month in large local authorities such as Birmingham.

How robust the Orkney market is is another question. The downturn in North Sea oil– which has hit the city of Aberdeen hard – has had a spillover effect, and farmers and fishermen worry about what will happen to subsidies when Britain leaves the EU. Patrick Collinson