The evidence is building to show that the rapid house price rises of late, are starting to slow down. It has been reported that the average house price decreased by 0.1% last month, with the average house now selling for £219,649, around £3,000 below the all-time high in December 2016. Mortgage brokers also report that surveyors are giving more cautious valuations, and even the overheated London rental market is starting to cool off.
That said, housing continues to be an excellent asset to hold. There is a reasonably high floor for house prices, given that an expanding population requires accommodation, and it takes a long time to build new houses, compared to other assets. The shortage of supply still means that it is much better to be a homeowner than not. House prices are unlikely to crash, but owners might find that their property doesn’t appreciate as much or as quickly as they had anticipated.
What are the causes of this slowdown? Partly – and especially in London – it reflects a return to equilibrium after a decade of prices and rents rising faster than wages. Whilst banks remained cautious, and despite government efforts such as ‘Help to Buy’, this could never have gone on forever. But there are further reasons, connected with the political situation.
People are less likely to take risks when they are uncertain about the future. Not only will they spend less on property, they are less likely to move house – this is reflected in Rics’s finding that instructions have also started to cool. General elections always increase uncertainty: this time around, although most predict the Conservative government will survive, the large difference between the two main parties on economic policy might encourage people to hold off until after June 8th. In addition – and probably overshadowing the uncertainty of the election – there is a huge question mark over the shape of Brexit. As noted by most economic commentators, if the end of free movement means a drastic reduction in immigration, demand for housing (again, particularly in London) could drop.
However, this is a worst-case scenario. If Britain secures a decent trade agreement with the EU, Brexit may have little or no effect on house prices. The point is, rather, that buyers are uncertain about how things will go, so they are delaying purchases in the meantime. Given that Article 50 negotiations will take two years (and a trade deal probably longer) this uncertainty could continue for some time to come.
As always, there will still be gains to be made for savvy investors. As noted above, housing remains a safe and lucrative asset, with no change to the most basic of economic fundmental principles – lack of supply and increasing demand; meaning that there are always opportunities to be had.
If you would like to explore bridging and development finance options to purchase property for yourself or a business, Tiger Bridging is here to help.
This article was written by Matthew Dailly, Managing Director of specialist bridging loan and development finance company Tiger Bridging Ltd.
For more information, or to apply for a bridging loan, contact us .
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