With so many factors to consider, and Brexit just around the corner, it can be difficult to predict what the new year holds for the UK housing market. But Leaders’ property experts have a few ideas…
To enable us to predict the future of the housing market, it’s important to understand the current property market landscape. Combining local knowledge and financial forecasts on the economy, interest rates and property affordability, we can assess whether the number of buyers, sellers, landlords and renters is expected to go up or down, and the impact on property prices and rents.
Will house prices go up or down?
“It’s likely you’ve read conflicting reports of price rises and drops,” says Kevin Shaw, National Sales Managing Director of Leaders. “Both are actually correct. In our experience, during 2017 and 2018, fluctuations in the property market depended on your property type and the postcode you live in.”
In London, the South East and East Anglia, Leaders has seen the market fully recover from the credit crunch. The local economies have boomed and a general shortage of homes in these areas has meant more people clamouring to purchase than there are properties for sale. According to Land Registry, prices have grown well: 60% higher than 12 years ago in London and just under 40% higher in the South East and East Anglia.
“These rises have led to affordability issues which have slowed demand, leading to prices and sales now stagnating and in some cases seeing falls,” confirms Kevin. But for other areas, such as the Midlands and North, prices have continued to rise in most areas by a few percent year-on-year.
What does the future hold for lettings and landlords?
Lettings directors at Leaders feel the outlook is bright for investors. "There’s an air of certainty across the property market following the general election result at the end of last year. In a recent survey, 92% of landlords we asked said they were looking to retain or expand their portfolio - which shows real confidence," says Allison Thompson, Managing Director Lettings (South).
Rental prices usually move in line with wages. With people receiving, on average, a 3.6% rise in earnings year-on-year, Leaders saw healthy rises in rents in 2019. "While Leaders' landlords rents rose throughout the year, the rate of which they accelerated more than doubled post the tenant fee ban in June," said Allison. Leaders expects this to continue through 2020.
In addition, mortgage rates are likely to remain extremely competitive, which can help investors maximise the profitability of their properties. “Leaders' expert BTL mortgage team recently provided one landlord advice on the restructure of nine investment properties,” says Emma Wells, Managing Director Lettings (North). “After a thorough analysis of the portfolio, the team highlighted a saving close to £500 per month across all nine properties, while also withdrawing over £210,000 to be used for additional investment purposes.”
Emma concludes: "We know landlords are still dealing with the loss of mortgage interest relief, taxation increases and Stamp Duty hikes, so it's never been more important to get the right advice on how to get the most from your investment.”
What do external enconomists say will happen in 2020?
Although it’s difficult to predict what will happen in the future, because more data and a better understanding of what drives rental and resale prices up and down, we do have forecasts from financial consultancy firms Capital Economics and PwC on the economy and property prices, which are important to be aware of when making property-related decisions.
Capital Economics predictions for 2020
Consultants at Capital Economics have focused on what will happen to interest rates, mortgages, the economy and the UK property market. Their view on 2020 is that interest rates are likely to remain similar to 2019 or may even fall slightly, potentially helping to improve affordability and drive up demand. Earnings, which can also help boost or reduce the amount people can pay for a property, are currently rising at 3.6% year-on-year, but Capital Economics believes wage rises are likely to be less in 2020, while the cost of living (inflation) is expected to remain below the 2% level.
This suggests that affordability may improve from a mortgage perspective, with wage rises perhaps being neutralised by cost of living increasing. This means affordability in 2020 will be very similar to that of 2019 levels - so no great drivers to increase demand.
As a result, Capital Economics predicts house prices will grow “between 1% and 2% per year between 2019 and 2021”. For those that are investing in residential property and rely on rent, the news is slightly better, as the economists believe rent prices will continue to rise in 2020, boosting “total returns on housing from 4.1% in 2018, to 5.7% in 2021.”
PwC property forecasts
In PwC’s latest forecasts, experts believe that “beyond 2019, we expect house price growth to recover slightly in 2020 and then continue to accelerate slowly in the medium term.”
It predicts that, although there are regional variances, overall property prices will rise by 2.1% in 2020 and by 3% in 2021.
Let Leaders help with your property decision
“In summary, as long as there aren’t any economic shocks to the UK, expectations for 2020 are that the market will improve, particularly now we have political clarity,” says Kevin. “In other words, prices are likely to rise, as confidence returns.”
If you are thinking of buying and selling, or investing and renting in 2020, do come and find out more about your local market. Our property experts at Leaders will happily help talk through your options - find your nearest branch here.
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