The UK housing market endured 2017 with stability, tackling political and economic uncertainty as well as numerous changes for landlords and first-time buyers. With the first month of 2018 behind us, Countrywide explores its own research to predict the industry’s year ahead.
Confidence will remain fragile
It's a cautionary year ahead for buyers, with Brexit uncertainties, a weakening economy, and the rising cost of inflation stretching customer confidence. First-time buyers might find the abolishment of stamp duty to be an incentive, giving the market a small boost, but otherwise this is a market that some involved are likely to play safe.
Wage growth will pick up – though we’ve reached peak employment
While 2017 provided record highs in employment, it also left little room for that number to grow. Wage growth might therefore see an increase over 2018 and into 2019, boosting confidence and keeping house prices affordable.
Interest rates will remain low (just not as low as they are now)
Although rates are set to rise, they’re unlikely to do so before May, with the rate not expected to exceed 1.25% by 2021. Though affordability tests and the rising cost of deposits remain the biggest hurdles, re-mortgage demand will benefit from the increased rate cycle.
Price growth will continue, but at a slower pace
2017 ended with price growth at 5.1%, with the Midlands and the North driving this increase. Price rises in London were much steadier, and are expected to fall further into 2018. On average, GB growth is expected to slow to 1% in 2018, making room for rises of 2.3% in 2019 and 2.5% in 2020.
Some growth in transactions
We’re set for year of recovery, weathering through a weakened economy, low confidence and rises in interest rates. The stamp duty relief is unlikely to make a difference to overall volumes, so it falls on the aforementioned wage growth to lend stability. Meanwhile, business investment is expected to recover, sustaining growth and adding liquidity to the market.
FTB stamp duty will only have a small impact on activity
It’s only a small driver, but the stamp duty tax cut is nonetheless driving growth in the industry. It’s London which benefits most, seeing an average £5,000 savings on stamp duty; elsewhere, however, the difference is a marginal £1,500. Help to buy is up from 70% in 2016, with three quarters of new sites now offering the scheme on some or all of their homes.
Home ownership will hold up better than previous years
Home ownership will be supported by low interest rates, wage growth, and the help to buy scheme. Households going into owner occupation is up 23% on last year, with those moving from rented to purchased up 5%. London is once again an exception, with the number of homeowners down to 47.5% compared to the UK’s flat level of 62.6%.
Another subdued year for landlord purchases – but still a bigger PRS
Buy-To-Let lending this year was comparable to 2013 levels – not the most flattering comparison. Yet elsewhere, landlord cash purchases remain stable, and 65% of the year’s landlord purchases are being made by cash buyers. Institutional money is increasingly finding a way into the sector, meaning plenty of room is left for growth.
Rental growth will accelerate in London, but flat elsewhere
Though the number of rental homes was down 4% in 2017 from 2016, rent prices rose by 2.4%. Though this is lower than 2015 and 2014, they represent rent rises one third faster than in 2016. London’s rental growth has gone from the slowest to the fastest in the UK, indicating yet more growth going into 2018.
Long term drivers will see the market get bigger overall in 2018 and beyond
There will be more people, more households and more homes in 2018, making for a larger market overall. With the population expected to rise by 2.2 million over 5 years, we’ll see an extra 1.3 million households, 800,000 private homes, and a rise in owned homes that will have outpaced our estimates of building by 500k.