Property prices rose 1.2% in 2017, a relatively slow increase for the dynamic UK property market, but things are predicted to slow even more in 2018.
The market is predicted to grow by 1% in 2018, the slowest growth since 2011. However, the market is not created equal across the UK right now. The London market and the upper end of the market are bringing down the national average. Although the market saw a moderate price increase, the home values in London fell by 1.8% in 2017 and forcasted to decline by as much as 2% next year.
Rightmove is forecasting a slow growth for 2018, yet, also forecasting a 2% price drop in the capital, in addition to slowing property growth in affluent areas within the city it is also directly affecting areas along the commuter belt. The growth is actually driven by first-time buyer homes, predicted growth at 3% and second-stepper properties with a predicted 2% growth. Therefore, the overall forecast is being weighed down by the most expensive sector of the property market and after years of runaway property prices, sellers at the top of the market are being forced to realign with prices to attract potential buyers.
We are seeing a multi-tier property market being established as the first-time buyer properties experiencing a growth rate in 2018 while the top tier is experiencing decline. There are several reasons for the newly established multi-tier market.
The political and economic uncertainty following things such as Brexit tend to weigh heavier on the capital. In the wake of Brexit, there has been an overall slowdown in the economy. With consumer outlooks remaining quite bleak, there overall sluggish economy will bring property prices down in London and surrounding areas.
The stamp duty changes announced last month for first-time buyers are predicted to boost demand in the beginning of 2018. Although the stamp duty tax should save first-time buyers up to £5,000, there are still not enough properties available for sale. The increased demand but consistent supply has the potential to drive up the first-time buyer properties.
Although first time buyers caught a break from the stamp duty changes, the second-stepper property investors might have more difficulty relocating. The increasing cost of moving coupled with the perceived market uncertainty means that more people are choosing to stay in their current properties, resulting in a slower property market.
Despite the 4% decline in upper sector properties and the slowest property price growth since 2011, the UK property market is still healthy. Nearly 85% of property transactions involve a first-time or second-stepper buyer and the mass market remains competitive and dynamic. With the rising cost of rent and the new stamp duty saving for first time property buyers, the property market will continue to see movement and subsequently, stead price increases.
However, the overall economy has received a downgrade from the British Chambers of Commerce. They cut their growth expectations to 1.1% in 2018 and 1.3% in 2019. Furthermore, Visa has reported that the UK has had their weakest consumer-spending index since 2012.
The falling buyer confidence, stretched affordability, the stamp duty tax and tighter lending criteria are affecting the property market. The property prices will continue to be supported by the shortage of for-sale properties, especially in the lower and middle sectors of the market. However, those trying to get on or move up the property ladder will welcome the break from relentlessly increasing property prices.