The property market is one of the biggest drivers of consumer spending in the UK. But with Brexit uncertainty and buyers and sellers reluctant to act amid price instability and the threat of interest rate hikes, you'd expect property trends in 2019 to be all doom and gloom. But just as there are two sides to every coin, the UK property market could produce some unexpected wins for buyers in 2019. Let's see what the year has in store.
Brexit uncertainty flattens sales expectations
Brexit will undoubtedly have a major impact on the UK housing market in 2019. The latest figures out of the Land Registry and Office for National Statistics show the average UK property price in November 2018 dropped 0.1% from the month before to £230,630. This followed declines of 0.4% in October and 0.3% in September. The annual growth rate registered at 2.8% in November, which was slightly up on the 2.7% of October.
It just might be that investors are learning to live with Brexit uncertainty. A report by the multinational professional services company, PricewaterhouseCoopers, recorded a decrease in pessimism in the UK property market by 12%. The reason is that nobody really believes that London will lose its place as the financial capital of Europe. All indications are that the UK capital will remain a strong market no matter which way Brexit goes.
Of course, property trends are not all about Brexit. There are other reasons for fluctuating prices and a sales outlook that's clocking the weakest stats in twenty years. Contributing to the lower sales expectations for 2019 is a lack of affordability as well as a shortage of houses available on the market. According to the Royal Institute of Chartered Surveyors (RICS), estate agents currently have on average just 42 properties on their books per branch – a record low.
The continued slowing of the UK's house price boom has an up-side
RICS forecasts that house prices will stagnate in 2019 as the number of sales fall by 5%. Experts base this flat market less on Brexit as an influencer and more on the belief that the stagnation of property prices is an inevitable correction to the house price boom in the middle of the decade. If this scenario does play out, over time house asking prices may come down still further, making property more affordable.
The general feeling in the market is that property prices are likely to remain flat through 2019 as a result of a slowed economy and the possibility that the Bank of England may raise interest rates if Britain does manage to wangle a favourable deal out of the European Union. A sideways move or minor slide of prices would mean that the UK's unsustainable property boom has managed to end more gently than most booms.
It's all about location
According to property website Zoopla, house prices in cities in the Midlands, the north of England, Wales and Scotland, have shown the most growth since the Brexit referendum in 2016. Birmingham showed 16% growth, Manchester and Leicester 15%, Nottingham 14%, Leeds 12%, Liverpool and Sheffield both increased by 11%, Edinburgh 7% and Cardiff 6%.
At the other end of the spectrum, London property values dipped by 1.2%, though an average house price of £481,200 still puts the capital well above prices in most other UK cities. Furthermore property price moves show big variations in the same city or region. In Scotland, property prices have risen by 3.3% in Glasgow, while dropping 6% in Aberdeen. And there are similar variances in London with Epping Forest recording growth of 3.1%, Bexley showing 1.7%. Elsewhere, in the North East prices are still battling to return to their levels before the 2008 financial crisis levels: the region suffered a dip of 3.2 per cent after the crisis and the average asking price remains at just £143,902 as of December 2018.
These statistics indicate that insecurity around Brexit change along with affordability pressures and higher transaction fees have had a greater impact in southern cities.
Experts expect 2018 property pricing trends to continue in most locations through 2019. The main exception to this trend is that house prices in the more affordable outer and commuter areas of London are expected to start rising faster, not least fuelled by the move towards more affordable countryside living, with businesses increasingly allowing staff to work from home and commute to the city - a trend expected for several years to come.
Meanwhile, RICS forecasts that the demand for UK rental properties will increase by 2% in the next 12 months. This is the result of fewer available properties to rent and a higher demand for rental accommodation from tenants who can't afford to buy their own homes in many cases. If the trend continues, RICS predicts that rents will increase by 15% by 2023.
Price instability allows more young families to own their own homes
Falling and stagnant house prices are allowing an increasing number of young families to own their homes. The Resolution Foundation think-tank puts the number of young families who have bought homes in the last two years at 190,000 - which represents an increase for the first time in over 30 years . The main reasons behind this are: lower house prices, stamp duty relief for first-time buyers, and lenders offering bigger mortgages of up to 95% of value, compared to 75% in 2009.
This key trend is expected to continue through 2019 as high numbers of young households move away from big cities in search of affordable homes with Chorley and West Lancashire, Leicestershire, Rutland and South Hampshire leading the way. As David Smith pointed out in his piece, ‘Housing is Creaking - and not just because of Brexit', in the Sunday Times on 24th February, first-time buyers and young entrants to the market are increasingly pushed towards buying new by stringent Help-to-Buy equity loans. As a result, younger buyers who may have opted for ‘fixer-uppers' in the past now face a growing incentive to buy new, which means that it's difficult for normal housing market chains to form.
Affordability pressure
House prices have increased by 152% (taking account of inflation) since 1995, while wages rose by just 22%, according to the Institute for Fiscal Studies. Contributing to affordability pressure for first-time buyers in particular, are difficulties around saving enough for a decent size deposit which is important to lowering mortgage repayments. The industry demand for higher deposits will continue as long as the Bank of England limits the number of high loan-to-income ratio mortgages that banks are allowed to loan borrowers.
A Bank of England survey found that in the current climate of economic uncertainty, a significant number of banks intended reducing the supply of secured credit from late 2018. In fact, economists are predicting higher borrowing costs as the Bank of England increases interest rates, and affordability pressures continue to restrain future increases in housing prices.
Low interest rates expected to balance inflation
What will happen to interest rates in 2019 is more difficult to predict than in previous years since a final Brexit deal and its consequences are still unknown. This has led to a variety of opinion across the industry with some experts saying there could be two interest rate increases of 0.25% in 2019, while others expect no increase at all.
For homeowners with a variable rate mortgage linked to the Bank of England base rate, an interest rate rise will immediate increase their mortgage repayments. Whereas fixed rate mortgages will remain unaffected, while remortgaging could be more expensive.
Stamp duty abolition good news for sector
Along with cheap mortgages, good news for first-time buyers is the abolition of stamp duty for properties under £300,000, or the first £300,000 of properties costing up to £500,000. This means first-time buyers can save up to £5,000 on a less expensive home. This applies in England, Northern Ireland and Wales, but not in Scotland which has an independent system of land tax.
A growing housing market trend influenced by the cost of Stamp Duty is the number of families who are opting to rent before committing to buying properties. This allows a potential buyer to try out the neighbourhood and get to know their local market before making a full-time move.
Turnkey homes growing in popularity
Properties in pristine condition are increasingly in demand. Four main reasons for this are: the convenience of moving into a home that doesn't require any work done to it; the rising cost of construction that makes renovation expensive and unpredictable; the convenience of new energy-efficiency homes; and the home-building boom (the government has allocated £1.2 million for land to build homes, and plans to build at least 300,000 houses each year.)
Stay ahead of the property game with MortgageGym in 2019
To find mortgages you're likely to be accepted for before you apply, try our Mortgage Calculator . It takes just 60 seconds to get your matches, and makes getting a mortgage simpler whether you're a first-time buyer or you're looking to move or remortgage your home. Our innovative online mortgage process cuts out trips to the bank and the mounds of paperwork that go with getting a mortgage. We match mortgage borrowers with mortgage lenders and you're guided through the process by your very own Mortgage Expert. Meanwhile, RICS forecasts that the demand for UK rental properties will increase by 2% in the next 12 months. This is the result of fewer available properties to rent and a higher demand for rental accommodation from tenants who can't afford to buy their own homes in many cases. If the trend continues, RICS predicts that rents will increase by 15% by 2023.