The UK housing market has been slowing since early 2017. In London and the South East, prices have fallen over the last three months: house prices continue to rise in other areas, but overall the picture is one of stagnation.
Halifax’s house price index shows that across the country as a whole, prices are turning in the worst performance since April 2013. The RICS UK residential housing market survey for July 2017 says price growth at the national level is “coming to a standstill”.
There appear to be two factors driving this: a shortage of new buyers, and a considerable drop in houses for sale. People who might have moved are sitting tight; whilst people who might have bought are opting to rent or live with relatives. According to RICS, the stock of houses coming onto the market has been dwindling for seventeen months, while new enquiries have tailed off since last November.
To what extent this slowdown arises from the looming prospect of Brexit is unclear. Some expected the fall in sterling after the Leave vote in June 2016 to encourage international investors to buy prime real estate in cities like London and Edinburgh. But this investment boom hasn’t materialised, and the biggest price falls are being felt at the top end of the market, with London the worst affected. Stamp duty changes in April 2016 have no doubt had a negative impact, discouraging both international investors and buy-to-let investors. But, according to estate agents, uncertainty is also a big factor.
However, it’s also possible that prices in London and the South East are simply undergoing a natural correction. Steep price rises in recent years have put property beyond the reach of many people, particularly younger people on average incomes. The Bank of England has recently introduced new rules to prevent mortgage lenders from lending more than people can afford, and it is also signalling that interest rates could start rising soon, which would affect existing borrowers.
Meanwhile, wage growth remains subdued, and rising inflation is squeezing household incomes. All in all, the current economic environment is not friendly towards would-be homeowners. It is not surprising, therefore, that prices are falling in the most expensive parts of the country, but not (yet) in cheaper areas.
Whatever the cause, many will welcome this flattening of price differentials, and the associated slowdown in rental costs. But not everyone will, particularly older people who were hoping to cash in their equity windfalls by downsizing, and others who were hoping to use buy-to-let as a higher-yielding pension investment. Some of these will have deferred sale and purchase decisions, hoping for better times to return once the path to Brexit is clear. But if the slowdown in house prices isn’t primarily due to Brexit uncertainty, but arises from domestic regulatory changes and buyer fatigue, then house prices could remain flat long after the UK leaves the EU, not only in London and the South East, but in the rest of the country as well.
Perhaps we are at last reaching the end of what has been (despite two reversals) a 40-year boom in house prices, especially in London and the South East. If so, the housing market of the future will be far less rewarding for those invested in it.