Despite the doom and gloom surrounding Brexit, the UK property market has remained surprisingly resilient in recent times. There are a number of issues going on behind the scenes which have impacted the property market and give a very interesting indication of the future. So, what do the recent metrics for the UK property market suggest?
Even though there is a significant shortage of rental property in the UK, changes to the property stamp duty system in April last year have had an impact. Recent data suggests that sales activity is around 8% less than the equivalent period in 2015 with particular emphasis on the buy to let market. Those who follow the property market metrics will be well aware that the buy to let market was hit with an array of tax changes which saw many people pushing through purchases before the change and going quite afterwards. This change in sales activity is reducing pressure on prices with Rightmove recently confirming a slowdown in asking price growth to around 2.3% in January 2017.
It is interesting to see fundamental shifts in the UK mortgage market during the final quarter of 2016. Official data shows that first-time buyer activity was up 4% but home movers were down a surprising 11%. This suggests there is more demand from first-time buyers than there is from those looking to move to new accommodation. It is also worth noting that as recent as 2010 home movers accounted for around 66% of the UK new mortgage market although this figure has fallen to 50% in recent times.
Interestingly, the average mortgage now seems to have stabilised at around £150,000 which would indicate slowing growth in house prices. This comes at a time when mortgage providers seem determined to fight for market share with 24% of mortgages supplied on a loan to value basis of 90% up from 21% in 2015. However, this figure does tend to swing quite wildly reaching as high as 33% in the boom times of 2007 and as low as just 10% in 2010.
The uncertainty in the UK property market has led to a “softer” market in development land especially in the London area. Statistics suggest that the value of development land in London fell by 11% during 2016 and we saw at least one developer writing down the value of their land bank by 20%. This comes at a time when build costs have increased by around 5% which seems to give conflicting views on how the market is developing at the moment. There seems to be new property development work but this is not being matched by demand for development land, suggesting that UK housebuilders are using up their existing land banks.
This conclusion would seem to be backed up by yesterday’s announcement from Persimmon that it will be increasing its special dividend (capital return) to shareholders. It seems that some UK housebuilders believe their excess capital is better off in the hands of their shareholders as opposed to reinvesting back into the business in these challenging times.
While there’s no doubt that we are starting to see a softening of the UK property market there is also no doubt that the forecast collapse in light of Brexit has yet to emerge. The metrics for the UK property market indicate a strong backbone of demand and recent results from UK housebuilders have been extremely positive. It will be interesting to see how the situation pans out once Article 50 has been invoked and the UK officially begins the process of leaving the European Union.