2017 was dogged by fears over the potential fallout from Brexit, you only had to turn on your TV, leaf through a newspaper or visit any news site to see impending economic doom writ large. Despite this, the housing market appeared relatively untroubled – even with its obvious supply problem – prices continued to rise, albeit slowly, and Halifax reported the number of first-time buyers hitting a 10-year- peak at the close of the year. Can we expect more of the same in 2018? Or, is this the year the market’s supply time bomb goes off and uncertainty over Brexit begins to impact the housing market? We take a look at what we know so far and the forecast for the next 11 months.
Falling House Prices
While 2017 was hardly a box office year for the housing market, it could be about to get considerably worse.
Towards the end of last year, economists and house market experts alike began to notice gathering storm clouds on the horizon. Major lender Halifax reported a fall in the price of the average home by 0.6% to £225,021 in December, while the annual growth rate declined to 2.7% in the three months to December from 3.9% in the previous three months.
A number of commentators are predicting a UK price growth of a meagre 1% – a figure that would see a decline in property values in real terms (once inflation is accounted for). The Financial Times goes even further: forecasting no price increase at all, making the UK one of only 3 major housing markets to experience no growth in the coming year (the other two being Greece and Norway).
What’s more, according to the Royal Institution of Chartered Surveyors (RICS) London and the South East is expected to bear the brunt of the slowdown, with both set for “modest price declines.” This comes in striking contrast to the previous decade in which, despite the fallout from the global financial crisis, London saw a growth of some 70%.
What’s causing this sudden slowdown? Well, it largely depends where you look – Economists are predicting a range of factors will place strain on the housing market in 2018. Continuing economic and political uncertainty in the wake of Britain triggering Article 50, the possibility of a further hike in interest rates following November’s base-rate rise from 0.25% to 0.5%, low consumer confidence, stagnant real wages, and mortgage affordability issues could all act as hurdles to market growth.
Building Activity, Mortgage Approvals, and Completed Sales to Remain Flat.
Although the number of affordable homes being built is increasing, up 27% in 2016-17 according to the Department for Communities and Local Government, the figure remains low and unlikely to provide any real stimulus to the bottom end of the market. The chancellor’s move to abolish stamp duty for first-time buyers on properties under £300,000 may provide a boost to those just getting on the ladder – provided it doesn’t push prices up
further. However, most commentators, including RICS, are predicting this will have little bearing on 2018.
Echoing this, enquiries from new buyers have fallen steadily for the past 8 months, likely in part due to the affordability gap, but also due to the squeeze on real wage growth and sustained economic uncertainty.
Halifax’s managing director, Russell Galley, told the Guardian: “The housing market in 2017 followed a similar pattern to the previous year. House price growth slowed, while building activity, completed sales and mortgage approvals for house purchase all remained flat”. As a result, Galley predicts that uncertainty and stagnant wages will continue to put potential house buyers off in 2018, although a shortage of properties on the market, low levels of housebuilding, high employment and low mortgage rates will avert a major crisis. All of which points to a rather insipid year to come for sales and completions, as the housing market continues its wait in the Brexit antechamber.
The Rise of Bitcoin Buyers?
Putting the doom and gloom momentarily aside, one of the more bizarre early developments in 2018 has been the rise in sellers accepting cryptocurrency. December saw the first houses in Britain bought using bitcoin, with the Land Registry even providing buyers with the opportunity to record the purchase price in cryptocurrency.
So, are we on the cusp of a paradigm shift in the way we buy and sell property?
In short: not yet. Bitcoin undoubtedly has advantages to offer conveyancing: due to its nature it has the potential to speed up transaction times – it’s volatility means buyers purchase outright, exchanging and completing on the same day. What’s more, its avoidance of the banking system negates any delays occurring from that.
However, there are some very large caveats attached to bitcoin. Firstly, it requires an enormous amount of due diligence work on the part of any conveyancing firm instructed to act on a bitcoin transaction. Establishing where the bitcoin came from isn’t easy, as by their nature cryptocurrency transactions are anonymous. It also involves the creation of contracts to protect both the buyer and seller from fluctuations in the exchange rate. Plus, calculating any capital gains tax is nigh on impossible. But the caveats don’t end there. Bitcoin is highly volatile, which doesn’t necessarily square with property investment – traditionally a low-to- medium risk, with low to medium returns.
Whereas Bitcoin is the polar opposite: its potentially dramatic returns offset by its high risk as a transaction medium. This changeability is likely to put all the but the bravest buyers off using bitcoin. Alongside this, despite its current popularity among speculators, there remains deep uncertainty surrounding Bitcoin. Some have even described it as being similar to the 2008 housing bubble which brought the World economy crashing to its knees. Which means, that even the world’s leading economists are unsure whether Bitcoin is a passing fad, interesting experiment doomed to failure or set to become part of all our daily lives.
Perhaps the property market’s word of the year will be “uncertainty”, it certainly feels appropriate a month or so into 2018. With unpredictability dominating the news cycle from the economy and global affairs to the cryptocurrency craze, perhaps it’s only natural that the housing market, so often a barometer of the UK’s financial health, is gripped by the same. One thing’s for certain: we’ll be watching the year ahead with bated breath.