Wednesday, March 7, 2018

UK House Prices Fall Leaving First-Time Buyers And Buy-to-Let Investors Wondering Where The Market Is Heading

The subject of house prices and getting on the ‘property ladder’ is never far from the conversation in London. The news that prices fell for the first time in six months in February, might offer a glimmer of hope for first time buyers and potential buy-to-let investors looking for a better return on their money than the measly rates the banks are offering.

The Nationwide index revealed a 0.3% month-on-month fall taking the average UK house price to £210,402, down from £211,756 in January. This marks the first time since August 2017 that house prices have fallen month on month.

The Telegraph reports the unexpected dip came after house prices grew faster than expected in January, due to a lack of supply in the property market which kept competition between buyers high.

Annual house price growth has fallen to 2.2%, Nationwide said. The building society's chief economist said that while month-to-month changes can be volatile, the slowdown is "consistent with signs of softening in the household sector in recent months".

Mr Gardner said Brexit and the economy will be key to the housing market's performance in the year ahead – doesn’t take an economist to work that one out! "We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth," he said.

In layman’s language, the economy and market will be slow, although “experts” and economists have been predicting economic doom and gloom since the EU referendum.

Bear in mind that most of the commentators are lenders (like the Nationwide) and estate agents who have a vested interest in maintaining a healthy property market and obviously don’t want to scare the horses.

Estate agent and former RICS Chairman Jeremy Leaf said that, as one of the most closely-watched indicators of property market strength due to its longevity and accuracy, Nationwide’s figures may "cause concern" – an estate agent’s term for “worried”.

He added that at this time of the year there should have been an increase, not a fall, in house price growth.

Sam Mitchell, CEO of online estate agents added that while the housing market isn't about to suffer a "full blown crash", we have some "tough months ahead and a lot of hard negotiating between buyers and sellers if the market is to get back on track".

Nationwide’s index covers the whole country, which is showing a modest slow down. However, new figures from Acadata this week report much steeper price falls in the capital, where the market is a world apart from some parts of the country where prices have been stagnant since 2008. 

The data firm said London prices dropped 4.3% in the year to January, the biggest fall since August 2009. 

London prices have been slowing for quite a while, partly brought on by a sharp increase in stamp duty on more expensive properties and less foreign buyers, but also because the affordability gap for young first-time buyers had widened beyond ordinary people’s reach.

The price-to-earnings ratio is now around 10 times average salaries, making London one of the most expensive and difficult places for people to get on the property ladder. 

The rental market remains strong, but thousands of landlords have been deterred by recent tax changes which will dramatically reduce their net earnings from but-to-let properties. Tough new rules on HMO lettings coming in this autumn will be another blow to landlords.

What does this all mean for buyers and investors and where are property prices going? The answer is, nobody really knows for sure. The more experts you listen to, the more confused you will become!

There is still a massive shortage of homes in the UK and the Prime Minster Theresa May announced measures to force builders to build more homes faster and not sit on land. But with interest rates on the rise and mortgage lending rules tightening, the market is hardly set to boom for the foreseeable future.

For investors, this could be a time to look for deals. For first-time buyers, this is good news and a more room for negotiation.

Check out my Podcast version, "UK House Prices Fall, What Does This Mean For You?" on Anchor!


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