No Brexit hit sees confidence increase in UK housing market
It has been an interesting couple of weeks for the UK residential property market with more evidence that the predicted hit expected from the decision to leave the European Union has been more of a mild drizzle than a deluge or flood.
Indeed, confidence is returning with the market seeing an upturn in August, according to the latest monthly report from the Royal Institution of Chartered Surveyors which is considered as an important benchmark for what is happening in the sector.
Overall, house price rises are regaining some momentum and sales are holding steady after some falls and even although the Halifax index showed a 0.2% fall it still showed annual growth of almost 7% and there is often a slight lull in August due to the summer holidays.
What should also be noted is that while the RICS survey points out that buyer enquiries and sales instructions continue to slip albeit at a greatly reduced pace, surveyors expect that prices and sales volumes will rise going forward not just in the next few months, but over the next 12 months.
It is also good news that RICS says that the market is likely to benefit from a more stable trend in activity which is driving the improvement in sentiment. But there are, of course, regional differences, with London in particular remaining negative for a sixth consecutive month.
It is also interesting that landlords have not been put off by tax changes. The latest report from Connells Survey and Valuation says that buy to let activity increased by 12.7% in August. This suggests that the sector has successfully absorbed the government’s 2015 policy changes and even enjoyed a post-Brexit bounce.
Although the restriction of tax relief on mortgage finance costs to basic rate tax only, the removal of the 10% wear-and-tear allowance, and the introduction of additional 3% stamp duty surcharge hit the sector following the 2015 budget and the last Autumn statement, but the report explains that the August rebound suggests the government’s changes are set to have been a short term problem for the sector.
All of this has been helped by the cut in interest rates. It was only a few months ago that everyone was expecting a rise in rates, but the Brexit vote has put paid to that. It means that it is still cheap to get a mortgage and that is helping first-time buyers and so is keeping the market moving.
There is also an encouraging economic outlook, high levels of employment and fading fears of a recession and even in London it is not all doom and gloom. The latest report from Knight Frank on the prime market suggest that buyers are returning, with a 22.1% rise in interest compared to a year ago. Price falls in London are obviously attracting buyers again. But the fall in values is not a bad thing. It is still too hard to save for a deposit if you are a first-time buyer simply due to homes costing so much. A lot is being done to build more affordable homes but a continued fall in prices would do no harm.
Going forward, the housing market is likely to tick along nicely. But we must not forget that there could be some Brexit surprises further along the way if, for example, the jobs market is hit or wages fall. No one knows the outcome of negotiations that are unlikely to start properly until Article 50, the legal transaction that triggers the actual leaving of the EU, is activated and there seems to be no hurry with this as far as the government is concerned.