2018’s property marketAdobe stock
One word describes the 2018 real estate industry: unpredictable. As the government launched new policies and Brexit dominated every headline, the market saw record swings in supply and demand. Historically strong regions like London and the south-west slowed, while the north saw house prices increase. The number of homes listed across the United Kingdom declined while the length of time sellers kept their properties on the market with agents increased. It was a year full of contradictions. Let’s take a look back at what drove this erratic market and what can we learn as we look ahead.
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A shaky start to 2018 (January – March)
In January, low affordability and fears around the UK’s exit from the European Union started to get the upper hand. House prices declined despite rising employment and the government’s decision to scrap stamp duty for first-time buyers on homes worth less than £300,000. But, house prices crept up again during February, increasing 0.4%.
Reports showed that first-time buyers had been capitalising on stagnating prices: the number of first-time buyers reached 365,000 in 2017 – the highest number since 2006.
The housebuilder, Bellway, also had positive news, announcing that it was on track to build more than 10,000 homes in 2018, despite an industry-wide shortage of materials such as bricks and roof tiles.
Season of market instability (April – June)
A tumultuous April brought the start of the new tax year, and along with it, a reduction in buy-to-let landlord mortgage relief. This meant that landlords were only able to offset 50% of their mortgage interest, compared with 75% previously. There were concerns at the time that these measures were too punitive, putting an excessive squeeze on the buy-to-let sector.
The Government also announced new measures intended to streamline house sales, with professional qualifications for estate agents and protection from gazumping – where an accepted verbal offer is later usurped by a higher accepted offer elsewhere – among the plans. These commitments, projected to materialise in 2019, will improve the buying and selling process to benefit both estate agents and consumers.
The Government came under pressure from local councils to increase its £2-billion promise for council houses and affordable homes for rent. This came following the news that not a single property had been built despite the Government spending £250 million to boost the construction of starter homes.
Volatility became the new norm over this quarter: Reports in April stated that house prices had posted the biggest monthly increase for 6 months, and by June this had slowed to the lowest rate in 5 years. Many homeowners likely held off listing their properties due to the unseasonably cold weather in March and April.
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Signs of recovery (July – September)
July saw a further house price slump thanks to a surge in sellers, with average price growth across the UK falling by 0.5% – the biggest drop month-on-month drop since 2012. However, house price growth recovered substantially in August, lifted by a low by a low unemployment rate, a recovery in wage growth and relatively low interest rates.
The Conservative Party conference in September brought several property announcements to the table including a new levy on foreign buyers of UK properties – designed to ease pressure on the housing market and make homes more affordable for British residents.
Government weighs in (October – December)
October’s budget brought a batch of new policies designed to help all players in a hesitant market. The Chancellor announced stamp duty cuts for shared ownership buyers and extended the help-to-buy scheme. The Government also revealed plans to boost housebuilding through an extra £500 million in funding for the Housing Infrastructure Fund, and £675 million to help councils turn unused high street buildings into homes.
For landlords, however, it wasn’t so promising, as capital gains tax exemptions for buy-to-let properties were cut, and lettings relief was slashed. Mortgage approvals also fell to a 7-month low, as affordability problems and an interest rate increase combined to subdue the market.
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Bellway hit its target of 10,000 homes built, and the Government announced its plans to introduce professional qualifications for agents and raise standards – expected to materialise in 2019.
What does it all mean
2018 was undoubtedly a turbulent year driven by contradictory forces. Employment went up but so did interest rates as mortgages went down. The government attempted to launch policies to help buyers and renters, but the uncertainty of Brexit weighed heavy on the market, causing the number of homes listed and available to rent to go down.
So, what’s ahead?
2019 looks set to be a year of similar contradictions. The latest government reports claim wages have increased, but Brexit inches towards a constitutional crisis. Budget funding commitments are either already in place or will come into force in 2019, including the increased money for the Housing Infrastructure Fund, higher levies on foreign buyers of UK properties and stamp duty cuts for first-time buyers. At the same time, a government fees ban on lettings will come into effect in a few months, possibly driving rents up and forcing more landlords to consider selling their properties.
What we’ve learned from 2018 is that the real estate market is directly impacted by economy and politics, but in unpredictable ways. The UK property market has proven to be highly adaptable and where there is a slowdown in one area there is growth in another. Brexit will eventually end one way or another, and the property market will stabilise as it always does. In the meantime, watch for the silver linings and adapt.