Written by Graham Norwood
December 3 2017, The Sunday Times
The arrival of forecasts for the housing market in early December is as inevitable as the growing pile of pine needles on the carpet between now and Twelfth Night. Property prices have risen by 2.5% over the past year, the Nationwide building society reports; 12 months ago, Knight Frank estate agency predicted exactly that figure on these pages, more bullish than many rivals and consultancies.
So, on the off chance that the new set of forecasts are accurate, what can we look forward to in 2018? Despite sirens sounding on economic growth, productivity and Brexit for the wider UK economy, predictions for the housing market are a little less bleak. Even so, estate agents think rises will be small at best, and are likely to be outstripped by inflation.
Countrywide, the biggest agency in the UK, thinks prices across the country will go up by 2% in 2018, and Savills and JLL both predict a rise of 1%; Knight Frank has yet to show its hand.
Those outside the house-selling business have more divergent views. The consultancy PwC predicts annual average rises of 4% until 2025, while the independent Office for Budget Responsibility expects a 3.1% increase next year, with prices bolstered by first-time buyers benefiting from no — or at least significantly reduced — stamp duty. The business consultancy Morgan Stanley, on the other hand, forecasts a 1.6% price drop in 2018, with falls accelerating as Brexit nears.
Looking further ahead, Savills anticipates only a 14% cumulative rise in prices across the UK by the end of 2022, but this could partly redress the north-south divide — the northwest of England will see the biggest regional increase, at 18.1%.
With house prices in the capital now a record 14.5 times the average income, according to the consultancy Hometrack, this is where the market is in the most trouble. In posh prime central areas, Strutt & Parker estate agency gives two scenarios: at best, prices will be static, but at worst they could plummet by 5%, depending on wider economic influences. Gloomier still is its warning that prices in prime central London could stagnate for several years.
Across Greater London — including outer boroughs where recent stamp-duty reforms have helped, rather than hindered, the market — the picture is brighter. PwC predicts a 3.8% average rise next year within the M25.
Hotspots may be few and far between, but some areas will shine. The B16 postcode — Ladywood, in Birmingham, named last year as having the highest levels of child poverty in the UK — has seen the sharpest rise in property prices, according to Barclays Mortgages. They rose by 17% in 2017, as buyers snapped up cheap homes. The Office for National Statistics says Brum lured 6,510 Londoners last year, with 5,280 going back to the capital, thanks to employers such as HSBC and HS2 expanding in the city.
Hometrack says that in Glasgow, Liverpool and Newcastle, the current house-price-to-earnings ratio is lower than the 15-year average, which makes them good value ahead of likely increases in the longer term.
And what about tenants? In London and the southeast, a glut of new-build homes available to rent, plus plenty of vendors who let until a buyer appears, means that supply is up. As a result, rents in 2018 should see only a small rise — no more than 2% across the UK, JLL predicts, and less than 1% in the capital, according to Cluttons estate agency.
These figures could increase if landlords pass on the costs of new energy requirements that must be met from April. And if the letting agents’ fees levied on tenants are banned, as the government pledges, they will probably be diverted to landlords. Either way, it’s likely to be the tenant who’ll end up forking out.