The forecasts for the UK residential market released today by Savills, the international real estate adviser, contains both good and bad news.
The good news is that the current UK government aims to promote building, development and housing delivery and is likely to intervene in the property market with new incentives. The bad news is that the UK housing market has entered a new phase of low price growth and significantly lower transaction volumes, due to post-Brexit economic uncertainty and weakening consumer sentiment.
‘This government has put housing at the top of the agenda in a way that no UK government had done since Margaret Thatcher’s,’ Lucian Cook, UK Head of Residential Research at Savills, told PropertyEU. ‘They have nailed their colours to the mast in no uncertain way, and their broader and focused approach could offset the negative factors that are weighing on the market.’
After a series of tax increases and stamp duty changes which have weighed on the residential market, especially at the high end, there could be new policy announcements including a fiscal stimulus, possibly as early as later this month when Philip Hammond, Chancellor of the Exchequer, will present his maiden Autumn Statement, giving the first indication of where his priorities lie.
No precedent
‘There is no precedent for the current market and the Brexit vote makes forecasting more challenging than ever before,’ said Cook. ‘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.’
Regardless of political decisions, Savills predicts that, while levels of price growth will decline due to the uncertainty, there will be no fall in house prices in the UK. The forecast is +13.1% over the next five years, which, nevertheless, is a fairly dramatic slowdown compared to the last few years, Cook said.
Different markets will perform very differently. Prime Central London, which over the last 10 years has been a magnet for foreign investors and has seen spectacular price increases, will suffer the biggest fall of -9% this year and then stay flat for the following two years, returning to positive growth only in 2019. Even working on the assumption that the City will continue to be Europe’s leading financial centre, London house prices will underperform the rest of the UK.
Increasing convergence
Another significant development, according to Cook, will be the increasing convergence between different regions in the UK. ‘The divergence across the country has been massive in the last 10 years,’ he said. ‘London has never outperformed the rest of the UK for so long and to such a degree ever in history as in the last decade, so there has to be a balancing. The North will catch up with London and the South to some extent, even if it will never equalise.’
The best-performing areas of the UK between 2016 and 2021 will be the East of England, with a predicted increase of 18.7%, followed by the South-East with +17%, the East Midlands with +13.6% and the West Midlands with +12.5%. If Brexit negotiations will conclude in 2019 as expected ‘with no drama’ house prices will bounce back, Cook predicted
