It’s been a tough 12 months for the high-value residential property industry, with a General Election cleaving the year in two, fallout from a major overhaul of the stamp duty system quashing activity, a continuing and chronic lack of housing supply, and international economic uncertainty – among other things – making meaningful market forecasts a very tricksy affair. The major research units have had their say on the year ahead (here), forecasting price growth of anything from 0% to +5% in prime central London, and from +2% to +7.3% across the UK; now, PrimeResi’s panel of experts share their thoughts…
From buying agents and sales agents to developers and legal advisors, these predictions come with years of boots-on-the-ground experience.
- This special Forecasts section is kindly supported by Maskells, residential agents in the Royal Borough since 1965
Introduction: A Tale of Two Markets?
- By Charles Curran, Maskells
Anyone reading the press and listening to the Chancellor over the past 12 months would be forgiven for believing that the story of UK property was a tale of two markets – the affordable housing sector and the prime market. The former akin to a long-neglected dog who is now apparently receiving the attention it so desperately needs and deserves and the latter, the former Crufts winner, cowering in the corner of it kennels whimpering “enough, enough, please, enough” as the Chancellor stands over it, cane raised. But is this what is actually going on? Or is it is a story of a single market, Government intervention and long-tail consequences for the rest of the economy.
The tale of two markets starts with the affordable home sector where the Government has introduced schemes including Shared Ownership, Help to Buy Equity Loans, Starter Home Loans and the right for Housing Association Tenants to buy their homes. The need for additional housing is well understood, however getting on the ladder is as hard as ever as people struggle to find the deposit and or do not qualify for the required income multiple the mortgage demands. At the same time, the Government has cut Housing Association rents meaning that the Associations can borrow less and therefore build fewer homes. At the other end price spectrum is the prime market, where we have seen prices increase over the past three years, fuelled by the availability of cheap debt, which homeowners are currently able to service.
Whilst there may appear to be nothing linking these two markets, the truth is they are linked by one element – debt – something the government is very afraid of. Household debt levels dropped after 2008 and over the past 18 months have been creeping back up and their objective is to reduce this. The fear is borne from the fact that should the Bank of England need to increase interest rates, the additional burden on mortgage borrowers would be such that cash would be diverted from other parts of the economy. This fear is what led to the SDLT increase on second homes and buy-to-let properties. However 80% of mortgages are buy-to-own and we must remember that when the MMR was introduced the underwriting criteria was a strict 75% Loan-to-Value and 3x income multiple. This has been relaxed to 95% LTV and 4.5x income multiple so one could argue that the government really is the architect of the situation it finds itself in now. They did not give the original MMR underwriting time to take effect – it would have gradually cooled the housing sector.
Notwithstanding this, their decision to increase SDLT is ill-conceived. Whilst a large SDLT may well have the effect of cooling the market, it also has one very undesirable side-effect – it reduces liquidity so that when people really need to sell, they can’t (as the transaction tax makes the property too expensive). The natural upshot of this is rapid decrease in prices but this is where the real problem lies: under the proposed bank capital adequacy ratios (Basel 4) the amount of cash a bank sets aside against debts in the mortgage market may be driven by Loan-to-Value ratios and Debt Service Coverage Ratios. The increased SDLT introduces a very dangerous scenario for the economy where bank balance sheets may be tied up as they allocate more capital to a rapidly reducing asset values thereby freezing their ability to lend.
The Government wants to reduce household debt so is not incentivised to make the affordable housing schemes available to all as this would increase debt levels. At the same time it does not want Middle England burdened with unaffordable monthly mortgage payments. It does strike us, however, that the increase in SDLT is akin to shutting the stable door once the horse has bolted. An alternative approach may be to limit the amount of mortgage debt available each month rather than the price of debt so that we do not find ourselves in a distressed market.
Are we in a house price bubble? Continued Government tinkering may well produce one and this will affect the economy as a whole and not just the housing market. And as for prime central London and cash buyers in general, they are just a victim of the current situation where it would be political suicide to tax only those seeking to take out a mortgage.
Words on the streets
Top industry pundits on what 2016 holds for the high-value homes sector
- Charles Curran, Director, Maskells
“Given the driving force behind government intervention in the housing market to date has been reduction of household debt, we do not see this changing during 2016. As such we see the prime central London market asking prices remaining flat with vendors accepting small discounts to sell – these properties were expensive to buy and vendors, unless forced, will wait for the right buyers.
As to prime London, for the first half of the year we see fundamentals (the need for housing) coming into play keeping asking prices flat to +2% and achieved prices flat to 2015 however as we move into the second part of the year, we see technicals taking over, (being the willingness of lenders to carry on lending at current levels and the effect of the increased SDLT in parts of the market from April) taking some of the forward momentum out of the market. We believe this will result in second half asking prices being flat to 2015 and achieved prices to -2% for 2016 year end. We would have seen a larger decrease however many new owners are locked into teaser rates for the next 2-3 years and vendors hoping for higher prices may keep their properties off the market, keeping stock levels low.
We do however see an increase in rental prices starting to creep in this year, particularly as fewer buy-to-let homes are sold to individual investors, keeping stock levels flat. This may be further exacerbated if mortgage lenders tighten their underwriting criteria forcing willing buyers into rental accommodation. This rental price increase will be amplified post 2016 and thereafter as mortgage interest rate relief is reduced to a basic rate tax credit for private landlords, forcing some to seek alternative investments to buy-to-let, thereby further reducing available stock.”
- Camilla Dell, Managing Partner, Black Brick
“Next year, we predict the market will continue much the same as it has been for the latter half of 2015; little buyer activity in the £2m+ range, combined with little stock coming onto the market, with prices in the £2m+ range continuing to fall in line with the recent rise in stamp duty. What will be interesting to watch is if the super prime markets of Mayfair / Belgravia / Knightsbridge fall again next year; Knightsbridge has already seen almost a 4% drop over the last 12 months and all it takes is for one or two vendors to accept an offer to sell their property at a lower price point, and this then has a knock-on effect for the rest of the market. If this starts to happen, we could see prices fall further, maybe another 5% or 10% as vendors who need to sell find themselves having to lower their price expectations. In our view, if prices do fall, especially if we see significant falls of 10% or more, then this will be welcome news for the market in terms of volumes, which have really suffered in 2015. As we saw when prices came down 30% during the financial crisis in 2008/2009, opportunistic buyers start to pile into the market, which will be a welcome relief for many agents. The market below £2m, but particularly below £1m, will continue to rise as this lower part of the market has been far less affected by stamp duty rises and is where both owner occupiers and investors feel safest.
“We predict that outer prime and outer London areas will continue to rise more rapidly than prime markets as investors continue to look for value and better yields. Areas such as East London, Canary Wharf, Camden, Islington, and new markets like Croydon will all outperform prime.
“We also anticipate a possible increase in US buyers next year as the US dollar is predicted to strengthen against other global currencies, including sterling. We are also starting to see a new emerging trend for wealthy clients in Scotland looking to move south as they are getting increasingly worried about the possibility of another Scottish referendum.
“In terms of what buyers will be looking for in 2016, it is location, location, location – top prime new developments of next year will be 20 Grosvenor Square, Chelsea Barracks, and in outer prime developments, such as The Television Centre in West London, will continue to do well. We may also see some “fire” sales in developments such as Battersea Power Station where previous buyers struggle to complete on their properties. A lot of BPS was sold off plan in Asia and many of those buyers have been hit hard by weakness in their local currencies making London property unaffordable.
“In prime London when markets are bad, vendors tend not to sell and stock becomes limited, however, there are a number of new developments coming online and those developers have to sell so it will be interesting to see what happens to prices on the new off plan developments being launched next year.”
- Jo Eccles, Managing Director, Sourcing Property
“Over the last year, we have seen a drop in overseas buyers and expect this to continue until at least mid-2016. However, British buyers have become more active in the property market as they have come to terms with current price levels and are making the decision to continue with their lives, moving if they would like – or need – to, and we expect them to remain in force throughout 2016. We also expect prices in central London to remain flat over the next six to twelve months.
“Additionally, now that the Chancellor stated that, as of 1st April 2016, an extra 3% stamp duty will be payable by buy-to-let investors and those buying second homes, we anticipate that this new measure will likely suppress those investors and second home buyers who are on the fence about their purchases, or those who are borrowing higher amounts and are more sensitive to greater transaction costs. Rental yields in central London are already low and higher purchase costs will no doubt make investors think twice about buying property versus other assets.
“The central London market has been underpinned to a certain extent by these types of buyers so, whilst we may see a rush of buyers before April, I think transaction levels and prices will stagnate post April.”
- Michelle van Vuuren, Managing Director of Residential Development, UK Sotheby’s International Realty
“2016 is likely to be a year of fairly limited growth due to a number of factors. Crucially, the impact of the higher stamp duty on high-value properties continues to dampen sales. Furthermore, the strict loan-to-income mortgage changes has meant people can borrow less. And with the highly unpredictable discussions on the EU referendum in 2017, we are likely to see increased passivity in buying. Prime central London has historically relied on international buyers that view the city as an economically dominant and secure investment. However with increasing political uncertainty, buyers tend to hold off until there is clarity in the market.
“One of the top areas we have identified for value growth in 2016 is around White City and Shepherd’s Bush. Westfield was the initial trigger to the area’s transformation, but with the redevelopment of the BBC site on the horizon and major investment from large housebuilders and developers, this is fast becoming one of the most fascinating areas of the London market.
“Buyers are increasingly demanding more amenities be provided in new developments as apartment sizes are now smaller than ever before. For example, resident lounges, entertainment spaces, gyms and spas, cinema rooms and games facilities, additional storage facilities, wine rooms, private garages and additional gardens are all almost common place in new developments across the Capital now.
“Amenities are key for occupiers who are compromising on space within the actual apartments. Critically, it is about providing the right type of amenities. Wellness and health is central to this, and private medical centres/ wellness clinics are likely to be the new ‘must have’ for developments.”
- Rory Penn, Partner, VanHan
“We are cautiously optimistic about 2016, however the market is unsettled and liquidity is down.”
“We don’t expect much growth in the central London market as a whole, except for the very best stock which we believe will keep increasing in value.”
“Prices at the top end of the market may adjust to compensate for increased tax costs.”
“We expect there to be fewer Russian and Chinese buyers in the market than in previous years; the strength of the pound means that London is not currently considered to be such good value for money.”
“It is expected that sanctions against Iran will be lifted next year, and we are already seeing interest from wealthy Iranians looking to buy property in central London.”
“We expect to see a drop in demand for some new-build developments, such as Battersea Power Station, as the market is becoming over-saturated.”
“We believe demand in Mayfair will continue to flourish as there has been a renaissance of the area as a residential hotspot. There is a lot of development going on and a high level of interest from foreign buyers who are still attracted to the social aspect.”
“Despite the general sense of pessimism around the market, we expect VanHan’s business to grow even more next year as we continue to prove our ability to close major transactions. There is a growing demand for the personalised and proactive services that we offer. Even in these less certain times, our unparalled book of contacts means we have ongoing access to buyers and investors.”
- Stuart Law, CEO, Assetz for Investors
“The property market in 2016 looks set to largely benefit those outside the capital. UK-wide house prices will likely grow by around 6% next year, as demand for housing continues to outstrip supply. London, meanwhile, will see a reversal of fortunes, and we could even see house price growth in the capital turn negative as the effects of unsustainably high prices and recent increases to stamp duty for wealthy purchasers deter investors. I expect we will see a big decrease in the number of London apartment sales to Chinese buyers as capital controls in China start to tighten and their local economy continues to experience difficulties.
“However rental values across the country will likely rise in 2016 by approximately 4% as the ‘tenant tax’ begins to take hold and landlords set out to grow their rent book to cover future curbs to tax relief on mortgage interest payments.
“With interest rates remaining at their record low level of just 0.5% I don’t expect to see any decrease in the number of investors looking to capitalise, but this investment will now be focused on many of the Northern Powerhouse regions which are set to benefit from greater infrastructure and regeneration over the coming years.”
- Kirsty Sugden, Hathaways
“2015 has generally been a slow year in prime central London house sales, as a result of both the General Election and the various changes to property taxation, which have been a bitter pill to swallow. In my experience, years such as this are generally followed by a more buoyant year as a result of the pent up demand and so I would expect a greater number of properties coming to the market in 2016. Currently, we are going through a period of adjustment to higher transaction costs, but nevertheless I believe that short-supply of quality property stock will prop up the market next year.
“Global security and the effect that this has on the financial wellbeing of economies around the world will impact on the prime London market to some degree. Britain’s political stability will continue to be a huge draw for investors and the super-rich who are drawn to the culture, business opportunities and education benefits that the country can provide for their families.”
- Mark Lawson, Partner, The Buying Solution
“We are all hopeful for a more normal and functioning market. 2016 will be the year to sell and buy property because sellers will need to get on and sell and frustrated buyers, who have seen very little stock in 2015, will look forward to fresh stock coming to the market.
“We expect large regional variations; Knight Frank’s Price Sentiment Index indicates property owners in the South and East are expecting significant increases in value in 2016. The Sentiment Index is not so positive beyond London and the South East.
“We predict the prime country market (below £1.5m) will see a price increase of about 3% whilst the super-prime (£5m+) will remain fairly flat.
“The reasoning behind these predictions is as follows:
- The UK economy is one of the strongest in the developed world giving confidence in the work place and therefore future earnings.
- There is a period of political stability with a single party government
- The supply of property remains short
- Interest rates are historically low and are set to remain so for probably the whole of 2016
- Mortgage rate approvals have picked up, particularly for buyers with larger levels of equity
- SDLT below £1.5m is not as onerous as the rate above £1.5m which at 12% has had a significant impact on the super-prime markets in both London and the country.
- The super-prime market is more affected by the sentiment of international buyers and currently the pound is very strong making it a less attractive time to purchase in the UK.
- The best in class super-prime properties should still attract buyers due to a shortage of supply generally however pricing will be key.”
- Jonathan Mount, Partner, The Buying Solution (London)
“Prime central London’s housing market has undergone a turbulent ride this year as the impact of significant changes to taxation continues to be felt. Affordability has deteriorated due to the drastic SDLT changes which have bitten hardest in the capital. It has taken time for vendors to realise that the resulting spike in acquisition costs cannot simply be borne by the buyer and must also be reflected via a reduction in asking prices. It was this discrepancy in expectation between buyers and sellers that caused transaction levels to stall in 2015, although we are now seeing things begin to change. There is evidence of dramatic price reductions and LonRes has suggested that over a third of prime London stock currently listed has seen a reduction in asking price as vendors are getting more responsive to market conditions.
“Here at The Buying Solution, we anticipate that the first quarter of 2016 will see a rise in the volume of transactions compared with the last quarter of 2015 as buyer and vendor expectations continue to align. As witnessed in 2015, we envisage that the section of the market which will remain most buoyant will be sub-£2m where taxation levels are lower and the threats of future changes to legislation are diminished. Property values will remain subdued as the economy continues to recover and taxation levels are absorbed. We feel that price growth in PCL will be circa 1-3% in 2016 depending on the capital value of the property.”
- James Greenwood, Stacks Property Search
“In the country, 2016 will be all about increases in transactions. Anyone expecting to see significant price movement will be disappointed.
“Interest rates will remain the same, salary increases will be minimal, there’s no Olympics, no General Election, no referendum. 2016 will be a lovely drama-free year in which to buy and sell.
“We are expecting significant movement in the country house market in 2016. There are so many gems available for sale; Londoners are going to be seriously tempted as they realise that the market in the Capital is tempered, with some erosion. Sellers in London will have to accept that there’s a change in the stamp duty landscape and they will have to take a hit particularly at the upper end of the market.
“A build-up of desire to move out of London will finally show itself in terms of actual movement, and I am expecting an increase of around 30% in transactions in the £1m+ prime country house market. Meanwhile prices will stabilise and transactions will slow marginally at the under £500,000 end of the market that has been so active in 2015.
“2016 will see continued interest in good regional cities, and demand will start to transfer to outlying market towns. For example, demand for Oxford will translate to demand for Farringdon and Wantage; and demand for Bath will translate to fashionable North Somerset towns such as Bruton.
“Big rambling unkempt houses will struggle to find buyers; property of this size either needs to be beautifully refurbished or a proper project, priced to suit.
“The market for enormous statement country houses at around £6m+ will remain static – there’s very little appetite for this kind of property at the current time and I don’t expect to see this change in the coming year.”
- Vic Chhabria, Managing Director, Rescorp
“2015 saw the Government’s punishing stamp duty increases, with the recently announced 3% surcharge to be levied on buy-to-let and second homes expected to further reduce the profitability of buy-to-let investments, which is likely to maintain upward pressure on private sector rents. The biggest price band that has been affected is from £2m to £5m, with properties priced up to £2m set to become the desirable choice with local and UK-based purchasers in the upcoming year. My personal opinion is that the prime central London market is on a slippery slope and although the Government will never admit to it, they have got this wrong and absolutely need to readdress their strategy.
“There has been a decline in transactions over the past year, which has seen a marked deceleration in house price growth. I believe the property market will see muted change in 2016, with a continued slowdown in sales values and transactions. If this were to generate momentum, which invariably it will, I can see 2016 being hit where valuations could be up to 20% off. Renting has become increasingly popular among younger generations, with the trend towards increased private renting and the rise of Generation Rent set to continue over the next few years. I predict that rental prices in the prime central London market in 2016 will be modest, with an expected 2.3% increase. Despite the climate of uncertainty, London’s popularity with investors is based on its political and economical stability, cultural diversity and strategic position as a major business force and I do believe that the capital will continue to be perceived by investors as an elite buyer’s property hotpot.”
- Josephine Ashby, director at John Bray & Partners in Rock
“The enduring attraction of Cornwall means that the demand for properties in desirable locations, like Rock, Polzeath and Port Isaac is fairly consistent. Naturally the downturn brought its challenges, but the last two quarters in particular have been strong, especially with people looking to invest in a holiday home in the UK, rather than other popular European destinations. I don’t think that we’re back to pre-recession levels quite yet, however there is a lot of demand for great properties and a shortage of supply and that’s only going to drive prices one way. We anticipate that the activity we have been witnessing recently will continue to build well into Spring 2016.”
- Carol Peett, Managing Director, West Wales Property Finders
“After a sluggish start to 2015 in the run up to the General Election, and a slow recovery after it, the property market in West Wales saw a sharp increase in sales for sub-£1m properties in the last quarter of the year. However, prime properties such as large country houses priced at over £1m, languished on the market having been affected by the latest SDLT rates.
“There is no doubt that the changes have hit the market for properties over £1m in Wales. However, with prices for such properties remaining stagnant, or dropping in 2015, there are superb bargains to be had in the £1-£2.5m price bracket which will attract buyers in 2016 priced out of the market in places such as Gloucestershire. Therefore, we predict a small rise of 2-3% occurring in this sector of the market in 2016 whilst the increase in sales for properties below that mark will see a general price rise over the year of between 4-5%. Prime sea view properties, which are in high demand and scarce, are expected to see increases of between 8 to 10%.”
- John Morley, JOHNS&CO
“Over the last eight years Hong Kong, Singapore and Malaysia have dominated the international buyer profile in London. I expect this to continue over the next year but I think we will also see more buyers coming from mainland China. Mainland Chinese buyers have always understood the US market – the US economy is one they aspire to and there are huge US manufacturing companies everywhere, providing education opportunities which we have lacked in the UK. However, over the last decade lots of developers have made a continuous effort to host exhibitions and conferences in China, which are beginning to bear fruit and Chinese buyers now have a good understanding of the market here. After the stock market jitters in China earlier this year people are looking to diversify their assets and less money is going into the local stock market.
“Far Eastern buyers are generally most interested in value and like areas where capital growth can be displayed and good rental yields can be generated. This can no longer happen in prime London because property prices are so inflated that the ratio between prices and rental income haven’t maintained an alignment. Parts of Zone 2 and especially Zones 3 and 4 where prices are still under £1,000 per square foot are the sweet spots for overseas investors. They like new districts – a good example is E16 – it’s right next to the Chinese Business Centre and values are currently hovering around £800 per square foot.
- Jason Rishover, CEO, Heronslea Group
“At Heronslea, we build in North London and Hertfordshire, and the outlook at the moment remains positive. A lot of our customers are downsizers, taking advantage of the price rises over recent years and swapping their family home for modern lateral apartment living, which has become the new bungalow for retirees. The market is still strong due to high demand outweighing supply – however an increase in interest rates or a sudden surge of property on to the market will impact sales and values. We are experiencing strong off-plan sales across the majority of our developments with the exception of high valued homes – anything above £1.5m / £2m has been affected by the rise in stamp duty. We are still selling at this price bracket but it is certainly slower.
“I’m pretty sure London is reaching a housing bubble and growth cannot be sustained. At Heronslea, we are finding that people, especially families or professional couples thinking of starting a family, are taking advantage of the buoyant market in the capital and moving further out into the super suburbs of wider London and the home counties, where they can get more for their money, wider choice of schools and a better quality of life”.
- Trevor Abrahmsohn, Glentree Estates
“I believe that the lower end will continue unabated and will enjoy further price rises of between 5-8%. Inevitably it will further disenfranchise the first time buyer but Help-to-Buy, although small in scope, will assist the lucky few.
“Although regulation on mortgage lenders is even more labyrinthine than ever it looks as though Interest Rates (and therefore Mortgage Rates) will not rise for more than a year or so as Inflation remains historically very low indeed and will probably not even rise beyond 1% next year.
“Mark Carney is effectively not needed at the moment and he only ‘puts his head above the parapet’ with proclamations about changes to Interest Rates (which are invariably inaccurate) in order for all of us to know he is still alive.
“Sadly, the higher end of the market will suffer as it has done during the past year with, probably, the same resultant effect on values which could well ease further by between 5-10% unless, of course, the Chancellor does something to change SDLT rates at the higher end.
“I have lobbied for either the Tax to be reduced from 12-8% (which will provoke more activity and more receipts for the Treasury) or let the existing liability be split between purchasers and seller. In both cases there would be a revival in purchasing property in this sector that is good for liquidity.
“My own view is that if you have spare cash and you are in stable employment there is no better place than residential property to invest money. I would take acceptable risks by borrowing as much as is advisable since the alternative investments are either far more risky i.e. equities or dull i.e. bonds.
“Investments in classic cars will still be better than most other alternative investments since there is a finite supply of these and demand usually outstrips the former.”
- Andrew Ellinas, Director, Sandfords
“The stamp duty changes that took place towards the end of 2014 have depressed the market across the board in prime central London and forecasts for next year have altered in light of this. I predict that price increases in the prime central London market in 2016 will be modest with some areas experiencing growth and others seeing prices remaining fairly static.
“We have seen many potential vendors choosing to stay put and spend the money that would have been expended as stamp duty on a purchase in refurbishing or extending their present home. This is currently particularly evident with family properties, and something we should expect to see moving into the New Year. The biggest price band that has been affected is from £1.5m to £5m. For properties below the £1.5m mark the changes are not too onerous. For anything above £5m, purchasers have sufficient funds and are therefore not too bothered about a heavy stamp duty bill.
“Unless something significant happens that we cannot foresee at the moment, there will not be a crash, but the global economic outlook combined with tax changes in the UK and the perceived high current values will subdue demand and this will take some time to work through. I do not anticipate sustainable growth returning until the third quarter of 2016.
“Regent’s Park and Marylebone are still undervalued in comparison to Knightsbridge and Kensington, but are becoming increasingly more fashionable and desirable. Other areas of growth will be in Fitzrovia and Kings Cross which are rapidly changing out of all recognition.
“The capital is undoubtedly still one of the safest places in the world to live and invest, and will continue to be a top investment location. This year, buyers from all over the world including, the Far East, China, India, Greece and Europe have been heavily spending their money and buying properties in London, and it looks like they will still be big players in 2016.”
- Kate Rees-Doherty, Associate, Private Client and Tax, Boodle Hatfield
“Following the Government’s announcement that as from April 2017 all residential property will fall within the Inheritance Tax net, the traditional offshore company/trust holding structures will no longer be an effective barrier to such tax. We expect a busy 2016 as all such structures are reviewed.
“Since April 2015, Principal Private Residence Relief from CGT is only available for non-UK residents on their UK homes if they/spouse/civil partner spend, broadly, 90 nights in their UK home (vice versa for UK residents with non-UK property e.g. a holiday home). Advice should be sought on both this and the effect of becoming UK tax resident.”
- Edward Allan, Solicitor, Property, Boodle Hatfield
“Global economic and political events seem certain to take their toll on the market in 2016. Buyers are still coming to terms with the new SDLT regime and we expect them to remain bullish about contract negotiations and deadlines. Good properties will still be in demand, whatever else happens.”
- James Wyatt, Barton Wyatt
“At the end of 2014, I predicted that the FTSE 100 would end 2015 at 7125. It is clear that my crystal ball needs a serious service.
“The price crash in commodities and oil during 2015 has laid waste to my prediction, and therein lies the rub when it comes to predicting where the property markets may be headed – we just don’t know what might be round the corner.
“Despite worldwide woes, the UK property market has been hit over the last year by a staggering array of extra stamp duty taxes by our Government. Receipts are forecast to be down by nearly £1bn this year – mainly as a result of 10-12% lower transactional levels. The top end of the market (over £5m) is in the slaughterhouse with 12% stamp duty killing off the golden goose. So there are several issues to watch in 2016.
- Buy-to-let. 3% extra on purchases. Another Government stab in the back for those investing for their retirement. Watch very strong sales up to £300,000 in Q1 then listen to the tumbleweed…
- Interest rates. The US have moved. We are likely to see our base rate shift up in Q3 or Q4. Despite its inevitability, the increase will spook just about everyone with mortgages.
- Brexit. I sit on the wall about this but an exit would end the UK’s position as a grand world influencer. The £ and property would suffer.
“The good news is that 10% deposit mortgages are back and so 2016 will see a strong first time buyer market in most areas. Major towns and cities outside London may see prices increase by 10%.
“The Home Counties will be hard hit in the £2m+ market. Expect to see modest price increases of 2%. Over £5m prices will remain static as buyers factor in a 5% increase in stamp duty.
“London will probably be nursing a property hangover for all of 2016. It’s a rocky road ahead. Make sure your seatbelt is on!”
- Peter Rollings, CEO, Marsh & Parsons
“The Chancellor’s stamp duty changes have certainly dulled the London housing market of late, and whilst 2016 will see a return to growth it will be rather lack-lustre. There now exists a fundamental unevenness between sellers – who want to sell their properties at the prices they were at six months ago – and buyers, who are seeking recompense for the increased stamp duty levelled at them. It’s already started but it’s going to take a while to iron out these differences, and in the meantime the brightest spots of house price growth will be in places where average house prices are climbing from a lower base.
“Gone are the days of ‘travel-card zone snobbery’ – and London buyers will increasingly stretch their aspirations southwards and northwards well into zones 3 and beyond to find the best priced properties. What we have commonly considered Prime London is growing geographically, feeding off the popularity of new progressing areas.”
- Peter Birkett, Howard Kennedy
“It is a truth universally acknowledged that a Russian in possession of a good fortune must be in want of a London property.
“The London prime market has been a magnet for foreign investment for several years, the story being that this has led to higher prices cascading across the country.
“That is open to debate, but prime London residential property responds to different pressures from the concerns of mere mortals. Buyers tend to acquire with cash. Transaction costs are of little interest to those spending more than a lifetime’s average income on what is often only one of a number of homes distributed around the world.
“It is not, however, a world without issues.
“Changes to stamp duty land tax have added significantly to the cost of buying property, but deals are still being done. So interest is still there, but what is going to happen in the future?
“Since 1973 the Nationwide House Price Index has tracked values through four recessions each of which jolted the generally upward trajectory.
“Anyone trying to read the tea leaves of the housing market could look for guidance there, but these turning points were each accompanied by an external shock not directly related to housing.
“In the 1970s it was suddenly increasing oil prices that threw most of the world into high inflation and low growth. In 1980 the new Conservative government put the economy through a seismic shift. Double digit inflation meant stagnating prices were a significant loss in real terms.
“The Lawson boom ended when double tax relief on mortgages ceased, along with the buying frenzy it created. What followed introduced a new term to our lexicon – negative equity. Nine years passed before prices recovered.
“The credit crunch hit in 2007 and six years expired before values crept back to the same level.
“So how accurate will our crystal balls be now if we try to guess where London prime prices will be a year, two years or more from now?
“One prediction we can make with a degree of confidence is that it will not be the housing market which determines when the current acceleration in prices will cease. Each of the four previous reversals has been triggered by external events such as commodity prices, elections, a political decision or a sudden change in the market for short term bank funding.
“Will the change be a gentle levelling out or another crash? Those with an understanding of Excel can flip the Nationwide numbers into a line graph that shows the recent price rises looking like the flight plan for a Saturn 5, almost vertical ascent and the faster it goes up generally the harder the landing. The safest prediction to make is that whatever does trigger a market turn will not be something that we expect. It will, to steal a phrase, be a Black Swan; something unpredicted and unpredictable.
“Watch out for what you don’t expect. It will change everything.”
- This special Forecasts section is kindly supported by Maskells, residential agents in the Royal Borough since 1965
Main image: The Fortune Teller by Yoda Navarrete (CC by SA 2.0)