Despite Uncertainty, the Market Remains Robust
Many experts are forecasting that residential property prices will fall after Brexit. A no-deal Brexit is predicted to precipitate sizeable property price falls. However, there are indications that such doom-and-gloom forecasts could prove wide of the mark. While Brexit uncertainty has reduced the number of planning applications, the residential property market in the UK is proving highly resilient.
Brexit Uncertainty Is Dampening the Market
The number of planning applications submitted by property developers and homeowners has fallen by 5% in the year to June 2019 compared to the year to June 2018. According to the Office of National Statistics (ONS), 443,700 applications were received between July 2018 and July 2019. This is almost 22,000 fewer than received between July 2017 and June 2018.
The number of planning applications received in the period reviewed was also the lowest for the comparable period during the last 10 years. The figures also show that:
- On the second quarter of 2019, 114,200 applications were received by planning departments in England – 4% fewer than in the second quarter of 2018
- 91,700 permissions were granted in the second quarter of 2019 – 3% fewer than in the second quarter of 2018
- 6,200 of the 355,000 applications granted in the year to June 2019 were for major residential developments – down 5% from a year earlier
Extrapolating these figures, it could be that we could see around 8,000 fewer new builds started in the next year – taking the number to below 160,000 and certainly not nearer the government’s target of 300,00 new homes each year by the mid-2020s.
There is little doubt that the political and economic uncertainty caused by the Brexit debacle is knocking the confidence of many residential property developers. However, several, such as Berkeley, have spoken of surprisingly robust market conditions.
Property Prices Are Rising ‘Despite’ Brexit Uncertainty
The latest house price data from Halifax shows that the average house price in the UK is up by 1.8% in the year to August 2019. House prices have increased for two straight months after four months of sideways or downward movements.
While prices are weakest in London, Halifax describes the market as having a ‘degree of resilience’. In its trading statement, Berkeley described prices as having ‘remained stable’ and said that they were experiencing good demand for new homes.
It is not only Berkeley who have reported strong numbers recently. Other large residential developers like Redrow and Barratt Developments have announced bumper profits. The CEO of Barratt Developments hailed “another outstanding year” – though it also said that activity had waned in London. However, it also said that the market in new builds had been remarkably resilient with no reduction in demand from first-time buyers.
Barratt also confirmed that the new-build housing market has been remarkably resilient, despite the increasing threat of a no-deal Brexit, adding that there had been no reduction in first-time buyer appetite.
What Happens When Brexit Uncertainty Is Removed?
There is no doubt that Brexit uncertainty is affecting the residential property market. However, it is far less than has previously been anticipated. We haven’t seen the massive price falls predicted by many purely on a vote to leave the EU.
Our clients are investing for value, and they see value in the UK. What we are hearing from domestic and overseas investors is confidence in the long-term prospects of the UK, deal or no deal. People still need homes to live in, just as they need food to eat and water to drink. The UK population is still growing, and immigration is unlikely to come to a standstill.
Other macroeconomic factors that will support prices in the residential property market include:
- The probability that the Bank of England will reduce interest rates
- Further falls in mortgage interest rates
- More money being made available in the mortgage market
- Help to Buy schemes
Specifically, we see that 15-year fixed-rate mortgages are now available at rates between around 2.5% and 3.75%. Such deals improve affordability and remove uncertainty. Shorter-term fixes are widely available: two-year rates hover around 1.25%, while five-year rates are below 1.75%.
Overall, while Brexit uncertainty is dampening the market, the underlying demand remains. Once the political uncertainty is removed, we could see pent-up demand for new homes released. The lower number of planning applications made recently could restrict supply at the time that this demand is released. Cheaper and more widely available mortgages will further help to support that demand for new homes.
Our investor clients are still buying, seeking out value for the incredible long-term potential in the UK residential property market. To connect with them, connect with us – call the team on +44 207 923 6100.
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