by Liam Bailey
The lack of an outright majority, for either major party, in yesterday’s UK general election means political uncertainty will continue to influence housing market performance.
The market will, of course, also be impacted by both future Brexit negotiations and the wider economic outlook. Our central view is that despite renewed political uncertainty in the UK recent trends will largely continue, at least for the remainder of this year.
Prime markets, especially in London, have been experiencing a tentative improvement in sales activity, from the very low levels hit in mid-2016, while price growth remains subdued. Both trends seem likely to remain in place. Mainstream sales markets will continue to see price growth squeezed by affordability limits and funding restrictions – although government support should help new-build sales volumes.
Amid the on-going undersupply of homes in London, the slowdown in new-build starts over the last 12 months suggests that completions may start to dip in two years’ time. In contrast, across the UK, new-build volumes will be likely to remain at current levels – due in part to the Help to Buy scheme run by the Government.
The outcome of the Housing White Paper, which was planned for release in the Autumn Budget, will potentially be delayed. The general pro-development policy bias is however likely to remain in place.
The housing market as a whole will be likely to continue to be supported by ultra-low interest rates, despite the risk of higher inflation due to the weak pound, which should remain a fixture through 2017. The weak pound itself should provide some stimulus for the London market in the form of overseas inward investment.
Our latest property market forecasts can be viewed here.
The market background
A review of housing market data since early April, covering the period of the election campaign, confirms a continuation of the slow but steady recovery in prime market activity, with more mixed signals from the mainstream national market.
Prime London sales volumes rose by 20% in April and May, compared to the same period last year. The comparison flatters this year’s performance, as the 2016 data was adversely impacted by the introduction of the additional rate of stamp duty, but this year’s sales volumes were at least equal to the levels we saw in same pre-election period in 2015.
The performance of prime sales in the country has been particularly positive; sales have risen by more than half year-on-year. Even against the level of market activity in 2015, sales volumes are still higher by more than 30%.
The mainstream market has seen sales volumes remain relatively upbeat while the rate of price growth across the UK has seen a rapid moderation, with annual growth falling from just under 10% a year ago to around 3% in May.
The London lettings market remains healthy, with the prime market recording increased volumes compared to the same period last year. The potential for modest rental growth is supported by the contraction in available rental stock, with inspections of new properties down 19% relative to last year, while instructions declined 10%. Demand for London lettings is higher than a year ago, with new lettings applicants up 37%, and viewings up by 35%. The number of tenancies agreed rose 26% on last year.
We will be updating our market commentary regularly as evidence of post-election market activity becomes clearer over the next few days and weeks.
