This report outlines the current and expected future trends in the residential sector, focussing on the extent to which the ongoing Brexit uncertainty has impacted property investors’ decisions.
In the first quarter of 2019, the total number of residential property transactions rose to 301,290 properties sold, in comparison to the 295,730 transactions recorded over the same period last year, according to the latest data from HMRC. Given that the negotiations for the sales in March were carried out during November or December, which were especially heated months for the Brexit negotiations, the latter figures suggest that the market has remained robust and stable despite the uncertainty surrounding Brexit.
The seasonally adjusted number of residential property sales in March being 1.4% higher than in February 2019, and 6.8% higher than in March 2018, along with a reduced number of properties coming to the market, resulted in increased pressure on average asking prices in April. Prices jumped by nearly £3,500 which represents the biggest increase for the month of April since 2016. This serves as a positive forecast for the rest of 2019, suggesting that the number of transaction levels will be similar to those observed over the previous five years, at approximately 1.2 million homes bought and sold a year.
Family homes with three and four bedrooms, excluding four-bedroom detached homes, have displayed a particular buoyancy in their value, with average asking prices being 0.7% higher than a year ago, according to Rightmove. In comparison to the 1.2% fall in the number of new-to-the-market sellers across the UK, owners of such family homes are more willing to enter the market, with 0.7% more sellers than this time last year. This residential segment is more likely to sell, with a drop in the number of sales by just 0.4% compared with this time last year, significantly above the national average drop of 1.6%. Overall, this suggests that buyers and sellers in this segment are no longer paying attention to the prolonged Brexit uncertainty and are starting to look out for new relocation opportunities.
With a 5% increase in offers made and a 22% rise in properties sold subject to contract, Knight Frank highlights that the underlying demand for prime property across England and Wales remains strong, despite prices in the prime markets falling by 1.8% in the 12 months to March 2019. The price performance is directly influenced by increased caution among buyers in sellers, resulting from heightened political uncertainty, and is also subject to variations depending on the location of the prime property. Prime markets closest to the capital taking on a larger hit, with values falling by almost 3% in North Surrey and by 5.4% across the North Thames and Chilterns over the 12 months to March. In addition, more expensive properties, valued above £2 million, have been subject to more substantial price reductions, by an average of 2.5%. Similarly, there have been large performance differences observed across different property types, with manor house prices growing only by 0.8%, in comparison to the 19% and 24% price growth of cottages and townhouses respectively over the same period.
Despite the somewhat negative price trends observed in the prime property markets over the course of the year, Knight Frank has suggested that once political uncertainty begins to subside, the underlying demand is likely to crystallise into more activity and substantial price increases, with as much as an 8.2% increase in cumulative price growth between 2019 and 2023.
Regional Performance and Lagging Supply
There are stark differences when looking toward regional performance, with the Midlands and the North of England enjoying the highest levels of house price growth over the past few years and driving up the national average house price.
Since the 2016 referendum, house prices have risen at double-digit rates across a number of areas, with Birmingham leading the way and enjoying a 16% price increase, followed by a 15% increase in Manchester and Leicester. This price growth is directly attributed to the influx of investment into regeneration projects, resulting in the improvement of infrastructure and transport links across the latter regions.
On the other hand, while price growth in London continues to lag behind residential property markets outside the capital, there has been a significant influx of new demand observed in the first quarter of 2019, with a 43% leap in applicants from the previous quarter. Dominic Agace, chief executive officer of Winkworth, has noted that as a result of lagging supply, increasing demand and more determined buyers, some of their properties were sold at well above the asking price, with some receiving numerous offers. Analysts suggest that the London market is bottoming out and activity levels are set to pick up over the course of the year, with confidence returning to the market.
With house prices growing and transactions picking up, there is an apparent lack of suitable housing to meet the needs of the population, as demand clearly outweighs current supply despite the substantial increase in construction funding, new planning reforms and councils being given more options to borrow for the purpose of new home development. Whilst the latter changes have spurred the construction of 220,000 homes in the year of 2017-18, it is still far from the government target of 300,000 new homes per year to satisfy the current demand for housing.
Positive Future Outlook
Property investment experts look at longer-term trends when forecasting future property investment performance. The UK’s growing population, a rise in divorce rates and fewer families choosing to live intergenerationally, underpins high demand levels for new properties, which is bound to outweigh the lagging supply in the medium to longer term. This suggests that property investors are set to enjoy high returns on their assets, which is seen through the activity in both foreign and domestic investor markets. In January 2019, only three weeks until the previous Brexit deadline on March 29th, the number of residential transactions was 1.3% above than in the previous 12 months. Consequently, real estate continues to be an effective investment asset that offers attractive returns and is able to withstand the effects of uncertainty and political turmoil.