The property market will not crash because of political uncertainty
The noise levels are now rising again, with experts warning that the hung Parliament could also hang the property market out to dry.
As ever, they will find a receptive audience, especially with Nationwide recently reporting that house prices have dipped for three consecutive months.
So is the long-awaited meltdown finally upon us?
Buyers still hold faith in the steadfast UK property market
The first thing to say is that falling house prices are only really a worry if you are looking to sell your property, as you may struggle to find a buyer at the right price. For most people, their house is their home rather than an investment, and if you have no plans to move, any loss is a paper one only.
Young buyers struggling to get on the property ladder may even have cause to celebrate a dip in house prices.
However, falling prices can hit the economy and knock confidence, making people feel poorer. So what is really happening out there?
Luxury property in London has spearheaded the UK’s house price surge in recent years and, fittingly, it is also leading the slowdown.
The latest figures from property agent Knight Frank show London has been one of the world’s worst performers over the past year with prices down 6.4 per cent. Out of 41 cities on its Prime Global Cities Index, only Zurich, Moscow and Istanbul fared worse.
Last week, estate agents Your Move reported that the number of sales in Greater London fell 29 per cent in the three months to the end of April, further shredding nerves.
Some may like to blame electoral and Brexit uncertainty, but they would be wrong. The prime suspect is Chancellor George Osborne, whose tax assault on foreign property buyers and domestic investors has hit demand in the capital.
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Taimur Khan, senior analyst at Knight Frank, says politicians have made more than 20 changes to property taxation, either direct or indirect, since 2010.
“The latest example was in April 2016, when the Government levied a 3 per cent stamp duty surcharge on second home and investment purchases.”
Arguably, Osborne’s attack has been a success, helping to cool an overheated London property market, without triggering a crash. Beyond the capital, prices are still rising.
The average UK house price hit £220,000 in April, up £12,000 on a year ago, a rise of 5.6 per cent. Prices rose 1.6 per cent in March, putting another £3,500 on the cost of a house in a single month, according to figures from the Office for National Statistics.
North London estate agent Jeremy Leaf, a former chairman of the Royal Institute of Chartered Surveyors, says the figures are encouraging, but date from before the election and sales are likely to slow over the summer: “Until the politics have been resolved, many potential buyers will be adopting a wait-and-see attitude.”
Brexit has not stopped the UK’s property market growth
Leaf said buyer confidence may also dip as consumer price inflation hit 2.9 per cent in the year to May, while wages excluding bonuses rose just 1.7 per cent in April, which means people are getting poorer in real terms.
The truth is that UK house prices are simply too expensive, now costing 6.05 times the average wage, rising to an incredible 12.05 times in London, according to online estate agent eMoov.co.uk. That is far higher than the long-term ratio of around four times average salary.
John Eastgate, sales and marketing director of OneSavings Bank, says falling real incomes will worsen affordability: “However, we expect to see mortgage rates at record lows for some time to come and this will support demand and ensure a modest level of house-price growth in the medium term.”
Some people are being priced out of the areas they’ve always lived in
Paul Smith, chief executive of estate agency chain Haart, says continuing house price growth is “once again proving the Brexit scaremongers wrong”.
“Buyers still hold faith in the steadfast UK property market, even amidst political and economic uncertainty.” The real problems lie elsewhere.
“We continue to rely far too heavily on the Bank of Mum and Dad to fund purchases, while the cost of stamp duty continues to frustrate both first-time buyers and downsizers,” he adds.
Most experts now agree on one thing: the UK’s rising population requires a rapid increase in house building to balance supply with demand.
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Peter Williams, executive director of the Intermediary Mortgage Lenders Association, says governments have repeatedly failed to tackle the chronic shortage of housebuilding.
“It makes sense to adopt a consensual, crossparty approach to determining housing policy and put the UK property market on a more stable footing.”
Jeremy Duncombe, director of Legal & General Mortgage Club, says the housing shortage is inflating prices: “Quite simply, we need to build more affordable homes to allow a greater number of buyers to take their first steps onto the property ladder.”
The shortfall will take years to redress. With demand continuing to exceed supply and mortgage rates set to stay low, dire warnings of a crash are just idle talk.
Source : EXPRESS