Sterling’s fall in value has delivered an immediate impact on inflation, with CPI hovering around 3%. The perfect storm of rising prices and stagnating wages means potential home-buyers – particularly first-time buyers – are continuing to struggle with affordability. With fewer people able to buy a home – and the Government’s Help to Buy crutch needing to become a permanent fixture – the property sector faces a challenging 12 months as developers seek to attract customers.
The Royal Institution of Chartered Surveyors (RICS) predicts that sales volumes will drop from 1.2 million in 2017 to 1.15 million in 2018. This already seems likely with a poor market performance in the closing months of 2017, with buyers stalling.
Nevertheless, some of the structural problems facing the housing market do seem to be abating with migration easing, construction capacity picking up and new infrastructure set to come online in the next few years – including Crossrail. This should lead to downward pressure on prices in the medium and long term. Furthermore, although the housing market is expected to slow next year – and barring any severe economic shocks – the chronic under-supply of housing will prevent steep drops in prices.
For those who can afford a home – or already have one – borrowers are likely to feel (somewhat) better off as the prospect of a significant mortgage rate rise continues to be minimal. This will impact renters as well, with rents only increasing by less than 1% in 2017 and falling in London last year.
With real rent increases not expected to occur in 2018, and with the ban on letting agency fees due to come in to force in the coming months, renters will feel the benefit. No doubt this will impact the fledgling Private Rented Sector (PRS), which has established itself in London and continues to make in-roads in the regional markets.
The variation in prices between London and the South East and the remaining UK regions is also expected to partially correct this year. RICS anticipates that property prices are to make strong gains in areas such as Northern Ireland and Scotland with further gains in Wales and the North West, with prices set to stagnate or fall in the South East.
The property sector, particularly in residential markets, will face tough challenges in 2018 as uncertainty continues to dampen markets and housing affordability remains a deep-rooted issue. However, after the post-recession years of double-digit percentage growth the market knew this time would come eventually.
Despite the challenges, opportunities lie in UK regions outside London where growth remains strong – in Cambridge, Birmingham, Manchester, Leeds. Oxford and Bristol. We expect to see more developers and consultants transition to these markets as London and the South East become less fruitful for growth.