Market uncertainty remains in the property sector as people continue to wait and see what unfolds next in the Brexit saga. The uncertainty has made housing affordability problem even worse as time has moved on.
Getting on the housing ladder has long been a pipe dream for many in the UK and particularly in London.
After a decade-long boom, and a more recent stagnation, the question arises: where do house prices in the capital city go from here? The market for high-end homes in London peaked about four years ago.
But after almost a decade of growth, the subsequent downturn has spread to mid-market homes as well. Official figures show London house prices fell 1.6 per cent in the year to January.
Despite this, the average house price in the capital city still stands at £472,000, close to double what it was a decade ago and out of reach of many Londoners.
Head of research at estate agents Hamptons International, Aneisha Beveridge said: “Affordability, in our opinion is very much the main reason why London has hit this slowdown, but it has been exacerbated by uncertainty, mainly Brexit related.” What comes next for London’s housing market is more difficult to predict.
Continuing political uncertainty has curtailed house sales in the capital. Beveridge says: “People have only been moving if they really need to so activity levels are quite low at the moment and people have been waiting to see what’s going to happen.”
Similarly, the number of sellers has shrunk, according to Tom Bill, head of London research at estate agent Knight Frank, which focuses on the premium end of the market.
“I think in the minds of some buyers and sellers we are potentially nearing the bottom of the market in terms of pricing so if you’re a buyer then you’re thinking now is a good time to act,” he says. If you’re a vendor, I suppose you might want to hold off and some are holding off.”
But not everyone is waiting. “I think that a lot of people are totally and utterly bored of Brexit now, says Aaron Strutt, communications director at mortgage broker Trinity Financial. People are thinking that they can’t put everything on hold while we’re waiting for Brexit to get sorted out. It’s potentially going to go on for too long.”
One group that remains potentially undeterred by the uncertainty is first-time buyers. Research from Hamptons shows that this cohort was responsible around half of home purchases in London last year, many of them benefiting from the government’s Help to Buy scheme and stamp duty relief for buyers taking a first step onto the property ladder. These buyers are also enjoying lower interest rates on their mortgages as banks compete for their business, according to Strutt.
Political uncertainty has also increased purchasers’ appetite for fixed rate mortgages, with borrowers keen to lock in low interest rates.
“There has been quite a big shift to people taking five-year fixed rates because they are not hugely more expensive than the two-year deals and they obviously offer longer terms payment security,” Strutt adds.
But low interest rates and falling prices have not solved a key obstacle for many buyers: affordability. “Despite the slight decline that we’ve seen the housing market in London is still vastly unaffordable for the majority of people,” says Sarah-Jane Gay, external affairs manager at the National Housing Federation (NHF), which represents housing associations.
The NHF is seeking hefty government investment in housebuilding to boost the number of affordable homes in the capital. Gay says: “Housing associations are ready and willing to build through whatever happens to the economy.”
Increased housebuilding could ease pressure on the capital’s affordable housing stock, but constructing new homes takes time. A resolution of the current Brexit impasse and economic uncertainty may have a more immediate impact on the housing market.
Several analysts predict an uptick in activity with buyers and sellers returning to the market if the government agrees a Brexit deal with the EU in the near term.
Should the political uncertainty begin to recede you can see a case for a recovery,” says Bill. Hampton is forecasting house prices to continue falling for the rest of 2019 irrespective of how Brexit plays out. “If the Brexit process gets delayed or we are in a no-deal situation it’s only going to make that a little bit worse,” says Beveridge.
(The author is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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