House sales decline and renting falls

15 August 2016

Has the momentum of the housing market finally come to a halt? It has long been the defining feature of the UK economy for a very long time and has certainly underpinned consumer spending. It is a moot point as to whether Brexit worries are the cause but it has perhaps amplified to a certain degree the fall in confidence in the market.  

So where is the fall in confidence being felt? Well, in a number of areas. New builds is one that appears to have been particularly hit. Research by London Central Portfolio (LCP) has shown only 1,491 new-builds in inner London have been sold so far in 2016 - 43 per cent down on the same time last year. Compare that with older properties, where 13,194 transactions have taken place this year, compared with 13,190 during the same period last year.  

New builds, especially flats, have appealed to investors in the past as they are popular with young professionals. The property is also covered by a guarantee and a long lease. The problem appears to be the prices that developers ask for - too much!  So then an old fashioned buyer will strike. Of course, there is also the combined effect of large tax hikes on buy to let investors which may have put off some people. The yield, at only 3%, is marginal already but if you have to pay 3% stamp duty before you have even rented the property it pays to wait. The inability to claim mortgage interest relief has also weighed on sentiment in the market.

The very high end of the property market in Kensington and Chelsea has seen large falls with prices dropping 13%. All this may well lead to further softening of the market. It remains to be seen how UK plc will fair when a fall in house prices are seen for the first time in almost 26 years. This does exclude the deep freeze of the housing market during the financial crisis which was more of a blip than sustainable drops across all areas.