What happens now to UK house prices?

It was only on Friday that I looked at something potentially beneficial for UK house prices which is a Bank of England interest-rate cut. That could come as soon as this week and later in the day markets adjusted to this as the Gilt market rallied and a ten-year yield of 0.86% has been replaced by one of 0.77% this morning. So maybe some cheaper mortgage rates are on their way.

London

This morning the Financial Times has moved onto one of its favourite topics and here it comes.

Agents for high-end London property have reported a bounce in multi-million-pound home sales after Boris Johnson’s election victory. Buying and selling agents said purchasers were committing to buy homes worth up to £50m after the decisive Conservative win provided political clarity. Overseas buyers also want to pre-empt a stamp duty surcharge planned by Mr Johnson’s government.

So even if we allow for some estate agent hype the new government and the prospect of some Brexit certainty does seem to have had a impact. We also got some more specific details.

Camilla Dell, founder of the buying agency Black Brick, said many of her clients had waited to exchange contracts until after the vote, including one buying a £3.8m newly built apartment in St John’s Wood. She said most of her company’s pipeline of £50m in home purchases would now proceed quickly. “They all want to get on and exchange, and not just because of potential stamp duty changes. A more confident market will make sellers more bullish on price,” she said.

Actually when we look at the next quote £50 million can go quite quickly.

Trevor Abrahmsohn, managing director of Glentree International — which specialises in super-prime north London homes — said an Asian buyer had committed on Friday to buying a £28m home and another purchaser to spending £5m on a property. “This is a shot of adrenalin in a market that was comatose,” he said.

So far you may note that these are commitments relying on estate agent’s word rather than actual purchases. To be fair it is so soon after the election that actual purchases are unlikely. But there does seem to be something going on as the often reliable Henry Pryor has tweeted this.

I’ve got a dozen clients looking for new homes with £25m between them bit.ly/35scLtK plus a group of others with a pot of £50m for post-Election, pre-Brexit, pre-Budget opportunities.

If we ask the Carly Simon question which is Why? We see that there are some factors at play. The settled election result is one although I note that Henry Pryor seems dubious about this concept.

 I even heard of deals going through with a ‘Corbyn clause’ where the contracts could be rescinded if Labour got in . .

Also there is this.

In November the Conservatives pledged to charge overseas buyers an additional 3 per cent of the purchase price in stamp duty when they buy homes in England. This would add to an existing 3 per cent surcharge for buyers of second and additional homes.

The Asian buyer above should he/she exist would have to pay an extra £840,000 which feels eye-watering.

Context

Whilst there is no doubt some hype in the above there is probably something going on. However there is a catch as it faces quite a lot of extra supply in central London. For example I went for a run yesterday and passed through the Battersea Power Station site where there is a large advert for Battersea Roof Garden with 600 flats being built. The roof garden is a nice touch but the description of “much needed green space” raises a smile once you know it is about 100 years from Battersea Park.

Added to this is the rest of the Nine Elms development and the Qatari development on Chelsea Bridge Road. Of course there is bias here as the main developments are in my area but the scale of them is significant and will require what are at those prices a significant number of purchasers as time passes.

Builders Share Prices

It would seem that investors on Friday were mulling a new version of Help To Buy.

In early trading, Taylor Wimpey shares rose 15% to 200p, while Barratt Developments and Berkeley Homes both registered rises of 13%, taking their share prices to 755p and 5,084p respectively.

Persimmon and Bellway were up 11%, to 2,784p and 3,086p, while Bovis and Redrow saw their stocks rise by 9% to 1,363p and 746p respectively. ( Building Magazine)

So there may be some support from that looking ahead. Whilst many developments in central London are too expensive to qualify some studio flats are priced within its range.

Rightmove

They have also joined the fray today.

LONDON (Reuters) – Asking prices for British houses fell this month by the smallest amount for any December since 2006, a survey showed on Monday, pointing to some upside for a housing market subdued by Brexit and election uncertainty.

Rightmove said asking prices, which are not seasonally adjusted, fell by 0.9% on a monthly basis after a bigger-than-normal 1.3% drop in November.

Indeed they go further with this.

Rightmove forecasts a 2% rise in asking prices in 2020.

That is a fascinating conclusion for an organisation which thinks this!

“With much of the political uncertainty removed, we expect that the number of properties for sale will recover as more new sellers come to market, making up some of this year’s lost ground,” Rightmove director Miles Shipside said.

So more sellers will lead to higher prices. Really?

Comment

The media seem to be starting something of a campaign on this front as even the i newspaper was on the case on Friday.

Property experts now expect those who have been holding off to go back to doing deals potentially driving house prices up.

“Expect a sharp uplift in transaction levels starting early in 2020, as buyers and sellers who have played it safe put their plans into motion,“ said Andrew Montlake, managing director of mortgage broker Coreco, adding that a ”huge amount“ of pent-up demand out there looks set to be unleashed on the market next year.

They should introduce Mr.Montlake to Rightmove as his “huge amount” of buyers could meet all their sellers.

However some factors have been in play all along. For example if you trusted the polls and bought UK property when the UK Pound £ was at US $1.19 and various FT journalists were saying on social media it was going lower you now have a solid return ( US $1.33. It will vary between foreign buyers as to how strong the exchange rate influence is but for some it will be major. Asian buyers may note that against the Japanese Yen there has been a rally from 127 to 146 already.

Thus my conclusion is that any rally in UK house prices will require more government and Bank of England intervention/ Otherwise we are on a road to nowhere with possible falls. I welcome that as with real wages rising finally affordability is heading in the right direction.

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10 thoughts on “What happens now to UK house prices?

  1. Now the election is out of the way its little wonder the press having their say.

    Todays PMI figures out in both Europe and the UK weaker than forecast and interest rates are going nowhere but down imo, we discussed this last Friday.

    There are some other factors to also take account and if Labour had gotten in more buy to let landlords would have exited the market due to Labour policies on right to buy, threatening to buy back properties some bough as investments.

    There was some other news out this morning which could effect the Government fiscal tools and that is borrowing higher than previously forecast:

    Guardian:

    “OBR revises up UK borrowing by £100bn
    In another blow, Britain’s fiscal watchdog has revised up its forecasts for government borrowing.
    The deficit will be roughly £20bn higher per annum over the next five years, the Office for Budget Responsibility has calculated.
    This is largely due to “a new accounting treatment for student loans and a material correction to corporation tax receipts,” and is meant to give a better picture of the UK public finances.
    The OBR says:

    We have restated our March 2019 borrowing forecast to include recent ONS statistical changes but have not incorporated any other new data, new judgements nor include an update to the economy forecast.
    After incorporating these changes, borrowing has increased materially by around £20bn each year.
    This means the 2019-20 deficit is now expected to hit £47bn, not £28.7bn expected. In 2020-21 it is seen at £ 37.9bn, not £18.9bn.
    So effectively, an extra £100bn of borrowing over the next five years! ”

    The election may be over but the strong £ will weaken inflation but also make our exports dearer so the latter just adds to the UK difficulties going forward. So I now see the need for an urgent BOE rate cut if not this week in January.

    But so far as house prices are concerned with lower interest rates, its highly likely we will see house prices still on an upward trend more so up North where I live and possibly over 2% or even 3% in some areas.

    Houses near me in the £175,000 to 250,000 going quite quickly only a matter of days at the lower end.

    • The OBR revision to put it in context with planned spending cuts amounts to more than the 40 new hospital upgrades and new hospitals.

      https://www.theguardian.com/politics/2019/dec/08/boris-johnson-40-new-hospitals-pledge-costed

      As for the general state of the mood of the average Britain two thirds say they plan to spend less and or increase their debt for Christmas
      http://www.ekklesia.co.uk/node/29160

      The BOE got a lot to think about this Thursday, if they delay an interest rate cut, they will they will see further damage to the retail sector, which in turn will mean more job losses going forward.

      Oh and I haven’t got an answer to the present difficulties facing the UK and Europe at the moment.

    • Daily Mail on Rightmove:
      The Mail highlights the 2% increase in house prices nest year subject to variations throughout the UK however the largest price rises expected to be in the North West of between 2″ to 4%

      https://www.dailymail.co.uk/news/article-7795473/House-prices-set-soar-two-cent-2020.html

      House prices in the North West still quite affordable and I expect that is one of the reasons for an expected higher percentage increase and also according to Rightmove there are 8% less houses coming to market.

      Supply and demand and affordability drives the market as does high employment and low interest rates.

      • Hi Peter

        I think that the effort by the OBR is really rather poor.

        “As trailed previously, borrowing has increased materially after incorporating recent @ONS statistical changes. We have now restated our March 2019 borrowing forecast to include these changes.
        Borrowing is up by around £20bn each year.”

        We were borrowing more and are now simply recording it. The poor old ONS has I think done the right thing by recording student loans in this way for example and may find itself under fire if the OBR keeps this up. I wonder if like in the case of the Housing Associations we may in say 2/3 years see a U-Turn?

        Also there is my first rule of OBR club

    • Hi Peter

      Yes the Evening Standard was on the case as well.

      “In the most spectacular example, a six-bedroom duplex penthouse in Belgravia was sold for £65 million to a Hong Kong businessman in his thirties just hours after the thumping Tory majority was confirmed.”

      I wonder why it is as I will be in that area tomorrow doing some pieces for The Investing Channel.

      Mind you there is also a bit of house price pumping going on.

      “A huge wave of cash has cascaded into the London property market in an “elation boom” triggered by Boris Johnson’s crushing general election victory.

      Deals worth hundreds of millions of pounds that had been put on ice have been exchanged or agreed since the scale of the Conservative win became clear, as relieved buyers flooded back into the capital.”

  2. And so the London bubble carries on, Foxtons share price collapse shows the extent to which the London market has virtually ground to a halt, hitting a high in 2014 at 375p they went as low as 45p last year and then bounced around there and are now soaring , 90p as I write this, contrast that to Savills which is now making new highs (as it only gets around 20% of earnings from London) shows the extent to which the London market is stagnating.Journalists and estate agents love to boast about how buoyant the market is citing examples of very high end properties selling quickly and foreign buyers flooding to buy literally anything just to get exposure, but the reality is that the rest of the market is now very vulnerable as “ordinary” properties(think around £1m) are still completely unaffordable for people that have to work for a living. So if you are not an arab oil magnate, a Russian oligarch/ gangster or a corrupt foreign politician looking to launder his ill gotten gains in one of the biggest money laundering racket sin the world,I’m afraid that you are going to have to continue renting as the affordability gap is so vast, that situation is likely to continue until the Bank of England and the government come up with some kind of socialist subsidy to enable you to buy.
    History tells us that particular wait will not be too long.

    • Hi Kevin

      The media do seem to be pumping London house prices. I would like to see where the authors of these pieces live as I note I am rare in being clear where I do. Those I know in my art of town who are trying to buy are using the Shared Appreciation scheme but can only afford 25% purchase and hence 75% rent. As it happens when I asked my friend told me that she and her husband would at least own 25% of it as it was the same money as they were previously paying in rent.

      But then we get the next conundrum as how can renting be expensive when we keep being told there is very little rental inflatopm?

  3. Great blog as usual, Shaun.
    You quote Henry Pryor as writing: “In November the Conservatives pledged to charge overseas buyers an additional 3 per cent of the purchase price in stamp duty when they buy homes in England.” Does the surcharge also apply to Northern Ireland? I assume it cannot apply to Scotland and Wales since they are no longer covered by the Stamp Duty Land Tax (SDLT).
    The Ontario government announced a Non-Resident Speculation Tax in April 2017 aimed at the Greater Golden Horseshoe Area (slightly larger but inclusive of the Greater Toronto Area) imitating a similar tax introduced a year earlier by the BC government in the Greater Vancouver Area. It certainly did have an impact in dampening house prices, although with so many moving parts, it was hard to isolate its impact from other measures taken to curb house price growth about the same time or afterwards. Unfortunately, it also almost certainly served to divert foreign buyers to cities that were not covered, either in-province, like Ottawa, or out-of-province, like Montreal. I suspect when the SDLT surcharge is introduced, one will see the same thing in the UK, with foreign buyers investing more heavily in the Home Nations not covered by the surcharge.

    • Different parts of the UK have different ways of taxing house purchases – e.g. in Scotland there is an extra charge of ~4% on the purchase of a second (and each subsequent) property. While this is reclaimable if the 2nd property is disposed of within 12 months, it is something to be aware of for those moving from England.

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