Reading recent industry reports(source EYE) about major UK agents closing branches and planning staff redundancies, these are indicators that all may not be well for house sellers and agents alike. However, behind the difficult times in 2016 there are key factors which influenced poor productivity. Understanding these drivers paints a picture of a house market economy in reasonable shape, which has been buffeted by events and storms, but importantly these events haven’t altered the direction of travel.
In part the 2016 UK residential property market has mirrored the chaotic and unexpected political turmoil in the UK and USA, however a calm but clear upturn has come into place at the end of this year albeit as a last lap surge, without which the 2016 property market review would have been a somewhat gloomy picture.
Market Drivers in 2016 – A lot to answer for by George!
At McCarthy Holden, larger town branches usually give a good indicator of the health of the housing market and during November our Fleet branch alone exchanged contracts on over £10m. worth of property sales. Furthermore they replenished this with almost the same amount in new sales arranged for the month. This was more than a healthy result for a November, and an outcome that was in the making back in September when the market really started to get moving fro the first time this year.
The key negative impacts during 2016 are clear. At the top end of the market (£2.0m. plus) the 2015 actions of George Osborne on hiking stamp duty levels directly caused a downturn in house sales activity and productivity. The populist political stance of clobbering the wealthy with increased stamp duty levels resulted in less revenue for HMRC, so this political and misjudged gesture resulted in less wealth for the UK in tax receipts. Furthermore, this reduced the level of top end house sellers coming to the market cutting off the house stock resources which normally drives the will to trade up. Result, a net negative impact and less housing stock on the market with resultant lower volumes of sales. Will new Chancellor Philip Hammond reverse this by ditching the policies of his predecessor George Osborne? On purely economic grounds and to improved tax revenue he should, but then again politicians are notorious for not listening and are London centric in their policy making.
In the UK during the six months from May to October there was a 75% reduction in sales of properties above £10m – down to just 15 from 61 in the same period last year. There was also a 51% reduction in sales between £5m and £10m – a fall from 201 to 99.
While there might not be much sympathy for this segment, there must nevertheless be concerns about a market that needs to flow freely from the top. Furthermore this reduced activity has a massive impact on the wider economy (carpet fitters, decorators, landscape gardeners, kitchen suppliers) because a house move always brings about change.
Overall there is speculation that the loss in tax revenue from stamp duty changes could be as much as £1bn. by the end of the financial year! (source Property Wire)
Many had been expecting a U-turn on stamp duty both in the buy to let and high end property sectors. However, not a hint was seen from Hammond in the recent Autumn statement and all that was referenced was the need to build more houses, thus repeating the same old refrain but failing to be pro-active.
With regard to productivity in the general house market (say £200,000 to £2.0m) the market is ending the year in good shape, but you wouldn’t have predicted that outcome during the first half of the year. The Q1 and Q2 trading on house sales was impacted by the EU referendum, so in the lead up to this both buyers and sellers simply held back and went for the do nothing option. Many economic commentators around this time were on the band wagon of house price falls and a market about to crash – it wasn’t it was just on hold because post Brexit it was like Christmas had come early on the house sales front. Buyer enquiry uptake was almost immediate and house sales were on the up, boosted in some part by American buyers keen to cash in on the pound dollar exchange rate movement.
London Market Declines – so what impact beyond the City?
During 2016, house prices have fallen dramatically in London but readers should not confuse this with a UK trend. London alone has in recent years suffered or benefited (depending on which side of the fence one sits) from vast house price increases due in the main to overseas investment. Such an influence skews the market, however the market outside of London has not been impacted in the same way so there is nothing to correct, hence why property prices in the main remain on a steady upward direction outside of London.
Last lap rally for house sales!
So from June onwards a steady and improving house market was developing, but of course the sales arranged in June and July take typically three months to complete. The real turnaround in house sales productivity therefore is only being seen in the last quarter of 2016, as a last lap surge and greeted with relief no doubt by agents and vendors alike.
Now, looking ahead we can see a positive close to 2016 which should set the scene for a steady 2017. In October 2016 there was good news that mortgage approvals had increased and based on McCarthy Holden’s performance on new sales arranged in November this trend will continue.
The year ahead?
Going into 2017 the mainstream housing market is in surprisingly good health and seemingly ready to absorb any uncertainty around the Brexit process.
At the top end, it could be a good time for buyers to get off the fence because if there is a downward adjustment in top end stamp duty then such a correction could easily be offset by an uplift in prices in the over £2.0m sector – something that hasn’t occurred for several years.
My top tip is to encourage buyers looking over £2.0m, to jump off the fence, because in this sector it could well be the time for buyers to to take a risk before prices move upwards after years of poor performance. Blink and you could miss the opportunity so start you property search here.
For 2017 the mainstream market should be steady with house price remaining static or showing a small increase (outside of London).
My business take on the year ahead is to keep tight cost controls, employ experienced property personnel, and don’t bank on planned outcomes; just stay close to your market, react swiftly and don’t be blown off course by the inevitable unexpected.
