What is really keeping UK property afloat?

The UK property market is proving to be something of a difficult child for many analysts who have constantly downgraded their forecasts only to see demand for the UK property market continue to improve. This is a market which has been talked down both pre and post Brexit but continues to remain extremely resilient as shown by recent figures from Barratt Developments, Redrow and Persimmon. So, what is really keeping the UK property market afloat?

Strong demand

Demand for UK property continues to grow both domestically and from overseas investors in light of the collapse of sterling. This is something which has surprised many people and at this moment in time this demand would not appear to be in danger of disappearing. Indeed UK housebuilder Persimmon reported an increase of 7% in potential house buyers visiting their developments since the start of 2017. This would not seem to indicate a market which is slowing especially when you bear in mind the particularly negative press since the Brexit vote.

Cheap finance

Cheap finance has played a major role in the current strength of the UK property market as have an array of UK government incentive schemes. Time and time again experts have warned about the potential ramifications as and when UK base rates “return to normal” but at this moment in time this move is some way off. So, while there is still cheap finance and government incentives available it seems many UK investors are “making hay while the sun shines”.

Lack of suitable stock

UK housebuilders have also reported a lack of suitable second-hand stock which is certainly concerning the UK estate agent sector. Fortunately for the UK housebuilding sector this plays into their hands because buyers are now looking towards newbuilds when perhaps in years gone by they would have been more interested in second-hand homes. This lack of suitable stock is also helping to push up the price of new build properties with Persimmon announcing a rise of 3.8% to an average of just over £206,000.

Will we really see a Brexit crash?

The UK economy is a very stubborn animal as it has shown since the Brexit vote last year. Many “leading analysts” suggested the UK economy would fall off the edge of a cliff and the UK housebuilding sector would collapse. Indeed we saw these concerns reflected in the market when housebuilding shares fell dramatically in light of the Brexit vote last year. Ironically the shares of leading companies such as Persimmon, Barratt Developments and Redrow have now recovered what were substantial falls in their share price and look particularly strong today.

It would be extremely dangerous to discount the impact of Brexit going forward because if nothing else the concern and confusion immediately after Article 50 is triggered will hit share prices at some point. The fact that the likes of Persimmon are returning significant capital back to their shareholders reflects how strong their balance sheets are at the moment. It is also interesting to see that they seemingly prefer to give this excess capital back to shareholders as opposed to building up their land banks in the current environment.

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