The fundamentals of the UK economy remain broadly positive, but sentiment remains very cautious. Strutt & Parker has not changed its forecasts for UK and PCL performance since the last quarter (Q4 2017). It is forecasting 2.5% UK house price growth in 2018 and in 2019, reaching 18% cumulatively between 2018 and 2022.
The figure in prime central London is set to be significantly lower, between -5.0% and 0.0% in 2018, but cumulative price growth over the next five years is forecast to be positive at 23%, with a downside risk of 0%.
Vanessa Hale, Director of Research at Strutt & Parker said, “Whilst Brexit negotiations continue and political and economic conditions remain uncertain, we have held our residential house price forecasts for sales. We maintain that from 2019 onwards it is extremely difficult to forecast the housing market with any certainly, but we would expect some bounce back and a return to growth once more stability has returned to UK politics and the economy.”
According to the Nationwide House Price Index, UK property prices grew 2.5% in the year to Q1 2018. National house prices are now 16% above the 2007 peak, with London prices 57% above the 2007 peak. Year-on-year growth in the year to Q1 2018 shows that on a regional basis the best performers have been: Northern Ireland (7.9%), Wales (6.0%) and the West Midlands (4.8%). Despite historically having one of the strongest growth rates in the UK, London showed the weakest growth in the country for the quarter (-1.1%).
Guy Robinson, Head of Residential Agency at Strutt & Parker, said: “After a muted start to 2018, with snow interrupting many people's decision to move, the market is showing signs of life. In a climate of fast property price growth and low stamp duty, the cost of moving previously seemed relatively inconsequential, but now, with higher stamp duty and lower house price growth, moving costs are extremely material in the whole event, and has had an impact.
People have come to terms with Brexit, and sellers should be preparing to act on plans put back from last year. As we move into summer, we are hopeful that a lift in confidence will see an increase in supply to meet current buyer demand.”
Total transaction levels for England and Wales look to be relatively equivalent to this time last year. However, in Prime Central London, despite transactions picking up over the course of 2017, they are now below what they were last year and are very low by historic standards.
Charlie Willis, Head of London Residential Agency at Strutt & Parker, said: “Whilst some buyers may have been driven to look at investments in other sectors and abroad over the last few years, the impact of stamp duty and taxation as a whole on PCL sales appears to have been absorbed by a reduction in asking prices.
While fewer properties are transacting than before, there has been a recent increase in competitive and sealed bids; and early signs that transaction levels and buyer confidence are rising. Buyers realise there will be more competition in the market the closer we get to a resolution on Brexit, and that they should make the most of fixed lending levels now, with further interest rate increases likely.”
Strutt & Parker has revised its forecast for Prime Central London lettings and is predicting lettings prices to be flat in 2018, before returning to growth in 2019. Strutt & Parker's latest figures show that the take-up of new rental tenancies across PCL decreased by 11.0% in Q1 2018, compared to the same period last year.
Kate Eales, Head of Residential Lettings at Strutt & Parker, said: “Although tenant demand has not fallen significantly, the supply of turnkey lettings property has. Investors who turned to lettings 12 months ago are returning to the sales market, they have come to terms with more realistic pricing and are focused on a sale. The reason this is not driving pricing up is because this is only one segment of the market, the older, tired rental stock will continue to sit on the market with longer voids and potentially lower rents.
The tenants that are out there in the market are more discerning than ever and want the best on offer.”
