By Legal Futures’ Associate The Cashroom
The autumnal backdrop has been developing for weeks with luscious greens turning to fiery shades of red and orange. Much like the fiery natural scenes we experience at this time of year, the UK’s political scene has heated up in recent months and despite the initial 31 October deadline – Halloween, the UK is still far from exiting the political nightmare.
As children around the UK begin to dress up in the nightmarish garb of the underworld, conversely, the property market is hoping that a definitive political outcome, from the imminent 12 December election and January EU extension, will enable it to step out of the nightmare it has experienced in recent years.
The UK’s Declining Property Market
Since the referendum result in 2016, the property market has been balanced precariously on the proverbial knife-edge. Whilst the UK experienced growth in the market, there have been signs of a property slowdown exacerbated by political uncertainty.
UK House Prices
According to the House Price Index published by the Office for National Statistics, house prices have increased by 9.3% since the referendum result in June 2016, rising from £212,887 following the referendum result to £232,710 in July 2019.
However, house price growth in the UK has significantly slowed in recent years. Following the referendum result, property prices were increasing by 8.2% annually.
By June 2017, this had fallen to 4.1% annual growth and declined to 2.9% by 2018. Unfortunately, since the initial Brexit deadline of 31 March, annual house price growth has effectively stalled, falling from 1.6% to a mere 0.7% annual growth.
If this trend continues and the Government are unable to deliver political clarity, forecasts predict a difficult conclusion to 2019. Standard & Poor, business intelligence corporation, suggested that property prices will end the year 1.7% lower than in 2018 if the UK leaves the EU without a deal.
Prices will then plummet by 10.2% in 2020 and a further 6.1% by the end of 2021 before gaining traction and improving by 5.9% in 2022.
Conversely, if a deal is made by the new January deadline, property prices are set to rise marginally in 2019 and increasing by 1.5% in 2020.
Transactions and Market Behaviour
Throughout 2019, buyers and sellers have adopted a clear wait and see approach to UK property, concerned that initiating a sale at the wrong time could plunge them into negative equity. Given recent predictions concerning the property market, a sense of trepidation may seem a sensible approach.
Although buyers and sellers are scrutinising the market with a greater sense of caution in 2019, this sentiment is not new. Since the referendum, property transactions in the UK have started to decline. The ‘UK Conveyancing Market 2019: Market Trends’ report found that UK residential transactions had fallen by 6.6% in the opening half of 2019 when compared with a year earlier.
Although the decline is more severe in 2019, it continues a trend that has seen transactions fall by 1% in 2017 and 2.4% in 2018.
As the country entered the second half of the year and the threat of a no deal Brexit scenario became a reality, transactions suffered a steeper decline according to HM Revenue and Customs data with June’s year-on-year non-seasonally adjusted residential transactions falling by over a quarter (25.1%) when compared with 2018’s figures.
Whilst the 99,890 residential transactions in August represented a significant bounce back from the stagnant summer transactions with figures improving by 15.8% from July and indicating a mere 0.9% decline from 2018, it is clear that fewer buyers and sellers feel confident in the current climate.
Key property market stakeholders such as conveyancers, surveyors and estate agents believe that the short-term outlook up to the end of the year remains fairly bleak, regardless of the Brexit outcome.
According to the September 2019 RICS Residential Survey, 16% more respondents expect property prices to experience a modest decline over the next three months. However, sentiments improve when thinking about the year ahead with the twelve-month outlook yielding a positive net balance of 24%.
Respondents have also experienced fewer buyers and sellers in the market. New buyer enquiries plummeted further in September from a negative net balance of -11% in August to -27% last month. Similarly, experts working with sellers have witnessed new buyer enquiries to fall with respondents posting a negative net balance of -37%.
Buyers and Sellers
Although Brexit has caused a blockage in recent years, life goes on and people need to move house for a variety of reasons with recent industry research suggesting buyers and sellers are unable to wait for political certainty before making their home move.
Market indices indicate that buyers and sellers are returning to the market in spite of constant EU extensions and political purgatory, confident that a clearer political picture will spur these stakeholders into action.
According to the NAEA Propertymark’s ‘Housing Reports’ in recent months, buyer and seller numbers have reached their highest levels since the referendum. In August, registered house hunters per estate agent branch increased by 37%, rising from 320 to 433.
The figures also signify the largest number of house hunters per branch in August since the referendum, dwarfing the 343 from August 2017 and 287 registered per branch in 2016.
More than anything, the numbers highlight the resilience in the market with many buyers unable to indefinitely delay a house move as life events like family growth take precedence over market anxieties.
Similarly, housing stock levels reached a peak point in August 2019 since the referendum with 44 properties available per estate agency branch; rising above the five-year average of 40 homes for sale per branch.
Having waited, postulated and delayed since the original March deadline, buyers and sellers have started to return. Whether this interest will materialise into increased transactions remains to be seen.
Experts predict that the market will remain subdued if the UK leaves with a deal, will waiver slightly if there is another delay and will face a significant decline if it crashes out of the EU empty handed. The industry sentiment seems to reflect this; many are concerned by the short-term impact but feel the market is resilient enough and will offer a more positive outlook in the next year. However, until then, we may need to withstand a few more bumps in the night.
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