The seasonal 1.1% (-£3,120) dip in the price of property coming to market this month is the lowest December fall since 2006. It gives a final flourish to 2015’s strong property market, pushing the annual increase up to almost £20,000 (7.4%), and is a strong indicator that upwards price pressure will continue in 2016.
Miles Shipside, Rightmove director and housing market analyst comments: “Whilst a fall is the norm at this time of year, this is December’s best post-financial-crash performance, signalling another round of price rises in 2016. Despite the shortage of suitable stock in many parts of the market, demand for housing is on the up. Although the average price of property coming to market is already up by a hefty 7.4% compared to a year ago, Rightmove forecasts that prices will reach and breach new records next year.”
Rightmove’s 2016 forecast is for new seller asking prices to rise by 6%. In spite of increasingly stretched affordability and rising taxation of the buy-to-let sector, there remains a stark imbalance of demand in excess of suitable supply. Rightmove analysis of email enquiries sent by potential buyers to estate agents since the start of October this year shows a jump of 37% compared to the same period in 2014. In contrast to this surge in demand, the number of properties coming to market has fallen by 5% over the same period.
Shipside observes: “Whilst initiatives are in place to encourage developers to build more new homes to supplement the supply of existing ones coming to market, the lead-times are long and developers face capacity constraints. In the meantime strong demand is being further fuelled by the additional momentum and aspiration for home-ownership that schemes such as Help to Buy create. We therefore predict that the average asking price will be another £17,000 higher by the end of 2016.”
Rightmove predicts that Outer London prices will rise by circa 6% in 2016, so looking further north and west may seem increasingly attractive. Analysis of Rightmove data by Dr Alasdair Rae, of the University of Sheffield, suggests that we may see an exodus of highly-skilled workers leaving the capital for more affordable yet vibrant cities such as Leeds, Edinburgh, Cardiff and Manchester. This ripple effect won't reach all towns and cities and continued stagnation or price falls are likely in less sought-after areas in the north and west of the country, especially if buy-to-let investor activity tails off. As choosier buyers demand easier access to amenities to satisfy convenience and lifestyle demands, expect to see increased price divergence between the more buoyant large urban markets and smaller urban areas that can’t offer the same range of facilities.
Dr Rae predicts: “2016 may be the year when many young urban professionals finally give up on the London market and consider long-term career moves to the UK's large, buoyant city-regions, such as Manchester, Leeds, Cardiff and Edinburgh. They are already very popular and pricey because of what they offer, but may seem cheap to London émigrés priced out of the capital.”
Making the most of April 2016 stamp-duty changes:
There are some interesting and imminent dilemmas for several different sectors of the market following the Government’s recent Autumn statement about a 3% surcharge on buy-to-let and second home purchases. Some would-be buyers or sellers may want to move more quickly while others may be better advised to delay their transaction until after the stamp duty changes.
Shipside advises: “Those looking to expand their property portfolios will be trying hard to find suitable properties to buy and then complete the purchase before the April deadline. Those selling for the first time are likely owners of properties suitable for renting out, so they may be best advised to take advantage of any surge in investor activity and market as soon as possible. Given that the legal process could take six weeks or so once a buyer is found, they only have between now and the middle of February to take advantage of this artificially induced boost to buyer demand.”
Financially-stretched landlords may also consider early action and look to sell now. While rents are forecast to rise in popular locations to improve their returns, some of the hoped-for increase in capital values may be dented in this sector once the stamp duty changes have gone through.
Shipside explains: “Highly-geared landlords who are worried about the upcoming changes to mortgage interest tax relief should consider whether this is an opportune time to exit the market. Again they need to act quickly as buy-to-let investors looking to purchase will want to complete before the April deadline.”
First-time buyers on the other hand may feel the increase in tax levied against buy-to-let investors in this sector will help them to secure a better deal if they delay agreeing to buy until it is too late to complete before the April deadline.
Shipside speculates: “If a buy-to-let investor wants to buy the same property as a first-time buyer, their purchase costs are going to be 3% higher if they do so post-April. That may mean their returns will not stack up to make it attractive, and they will potentially be at a disadvantage compared to would-be owner-occupiers looking to get onto the property ladder. Prices may therefore have a period in the relative doldrums in this lower-priced sector, until the dust has settled. However, demand among fellow first-time buyers remains strong so waiting for prices to fall could be just wishful thinking. A lot depends on the dynamics of your local property market so doing your local research is very important as always.”
Agents’ Predictions
Mark Manning, Director of Manning Stainton in Leeds, Harrogate, Wetherby and Wakefield said: “The last 12 months has seen a surplus of supply turn into an excess of demand within a relatively short space of time, leaving the shelves pretty bare this festive season. Overall Leeds for example has just 3,500 properties for sale, 30% down on what we would consider the norm. Against this we’ve seen a surge of new buyers and tenants. The recent change to stamp duty on buy-to-let or second homes together with the tax relief changes will create some interesting decisions for landlords in the New Year. This, together with an increase in new build sites coming online, should add to a predicted increase in supply at the start of 2016 and our estimate is an average 6.5% increase in prices over the next 12 months.”
Robert Scott-Lee, Managing Director of Chancellors in Surrey, Bucks, Oxfordshire & Berkshire says: “We’ve seen some strong prices recently with indication these will continue into 2016, specifically in market places with active investors. We’ve seen huge growth in prices when urban regeneration plans have been confirmed and have started to progress with local authorities. Great examples are Bracknell and Slough where our offices are reporting frequent over asking prices being secured and expect double digit price growth may be possible through 2016. We’ve had a rush from landlords looking for high quality stock, for example those with good EPC scores, so that they can maximise yields to professional tenants. With good buy-to-let mortgage rates available this has given good confidence to landlords looking to extend their portfolios and we expect this to continue even after the stamp duty changes in April.”
Nick Barnes, Chestertons’ Head of Research, offers the following predictions for the London residential markets in 2016: “We’re likely to see a flurry of activity before the 3% premium in stamp duty in April for second-home buyers and buy-to-let investors, but after that there may be a slump as particularly pensioners and smaller investors are deterred from entering the market and instead look for other investment options. This will hit London the hardest, as around 15% of buyers here are buy-to-let or second-home investors. I think more pensioners and ‘empty nesters’ will be looking for realistic options to downsize but stay in the capital, while jobs in the booming hi-tech and financial services sectors will continue to make London an attractive option for major multi-nationals, and the expansion of the ‘City fringe’ will continue unabated. However, some organisations, including the CBI, are warning that the availability and affordability of homes in London, coupled with the uncertainty a Brexit vote will bring, could make some corporates look elsewhere in 2017 and beyond.”
Stephanie McMahon, Head of Research at Strutt & Parker says: “Price growth in London is being driven by the Greater London market as changing lifestyle needs and net migration fuel demand. In addition future infrastructure improvements such as Crossrail are being priced in across more peripheral areas such as Southall and Hayes & Harlington to the West and Woolwich to the East. The UK market as a whole is in steady growth mode as the demand side policies such as Help to Buy, alongside cheap borrowing rates and low supply levels create price impetus. The areas with the greatest momentum are those which are readily commutable and/or are benefitting from infrastructure upgrades. Anticipated interest rate movement in the coming 18 months will cause concern for the highly leveraged and has resulted in increasing numbers fixing their mortgage products to ensure consistency of payments.”
