Political uncertainty is a driving factor behind the recent dip in the housing market, an expert has warned.
Malcolm Simpson, IFA at Winchcombe-based Sandringham Financial Partners, said he believes the fall in house prices is due to a combination of factors including Brexit and the general election results.
He said: “Future house market trends will be governed by developments in the wider economy. Given that the annual percentage change in house prices in March 2016 stood at 5.7 per cent and is now 2.1 per cent – and we have since had a Brexit referendum result and a general election resulting in no majority – I expect the political uncertainty will continue as a driver. Given that we have had three consecutive monthly falls for the first time in four years, I personally would not be surprised if that trend continued further; however, predicting house price movements is notoriously difficult.”
This comes as Nationwide announced the average cost of home fell 0.2 per cent last month – with price growth slowing further in 2017 as inflation squeezes household income.
Mr Simpson added that despite the fall in house prices, he had not seen a rise in investors seizing this as an opportunity to add to their buy-to-let property portfolio. However, he believes this is due to other factors, including the 3 per cent hike in stamp duty rates from April 2016. He added: “What history shows us is that whenever a government gives advance notice of increases in stamp duty it results in a bubble and then a slowdown or even a fall in house prices.”
The fall in house prices was further dragged down by the annual growth rate in May, to 2.1 per cent – the lowest in nearly four years – indicating that the market is losing steam, according to Nationwide.
Robert Gardner, Nationwide's chief economist, said that although it is still early days, this provides evidence that the housing market is losing momentum. He added: “This may be indicative of a wider slowdown in the household sector, though data continues to send mixed signals in this regard.
“While real incomes are again coming under pressure as inflation has overtaken wage growth, the number of people in work has continued to rise at a healthy pace. Indeed, the unemployment rate fell to a 42-year low in the three months to March.”
He insisted that if history is any guide, the slowdown is unlikely to be linked to election-related uncertainty.
He added: “Housing market trends have not traditionally been impacted around the time of general elections. Rightly or wrongly, for most home buyers, elections are not foremost in their minds while buying or selling their home.”
The lack of confidence in house buyers was also reported by Halifax. Martin Ellis, Halifax housing economist, said housing demand appears to have been curbed despite the fact that annual house price growth fell to 3.3 per cent in May, after reaching a peak of 10 per cent in March 2016. He said: “Housing demand appears to have been curbed in recent months due to a deterioration in housing affordability driven by the sustained period of rapid house price growth during 2014 to 2016.
“Signs of a decline in the pace of job creation and the beginnings of a squeeze on households’ finances as a result of increasing inflation may also be constraining the demand for homes.
“The fact that the supply of new homes and existing properties available for sale remains low, combined with historically low mortgage rates and a high employment rate, is likely to support house price levels over the coming months.”
Howard Archer, chief economic adviser to the EY Item Club, said an expected squeeze on consumer spending casts doubt on the housing market’s ability to achieve modest growth of 2 per cent across 2017.
He insisted consumer purchasing power would be squeezed by a combination of higher inflation and muted earnings growth over the coming months.
He said: “Housing market activity and prices could also come under pressure from stretched house price to earnings ratios.”
So, what impact does this have on the personal buyer looking to make possibly one of the biggest financial decisions of their life? According to Lloyds Banking Group, market trends do not influence the style in which advisers guide customers.
Lloyds insisted that its mortgage advisers base their recommendations on the customer’s individual needs and circumstances rather than general market trends. It added that as a responsible lender, it always highlights to customers that having only a small amount of equity in their property increases the risk of falling into negative equity if house prices fall.
Lloyds’ research gave gloomy picture of the housing sector after it showed a fall in property sales with London and the south east faring worst. In fact, it announced in June that sales in 2016 were 7 per cent lower than in 2015. There were 848,857 homes sold in England and Wales in 2016, compared to 915,096 the previous year.
All regions saw a decrease in sales in 2016 compared to 2015, with the largest falls in Greater London, which was down 18 per cent, and the south east, which was down 10 per cent. Both East and West Midlands fared the best with just a 1 per cent decline, followed by the north west, which had a 2 per cent drop.
It is not all bad news. Despite the recent dip in home sales, there has been an improvement compared to five years ago when the market started to recover from the financial crisis. The number of sales in England and Wales as a whole increased by 29 per cent from 2011 to 2016 with the majority of regions seeing increases of between 23 per cent in the south east and 46 per cent in the north west. The exception – and the worst performer by some distance – was Greater London with a rise of just 2 per cent in the past five years.
There is also some good news that continued year-on-year house price falls in London are thought to be unlikely amid signs the rapid slowdown in growth could be coming to an end. Hometrack’s latest UK Cities House Price Index showed house price inflation in the capital is running at 3.3 per cent year-on-year – the lowest level for five years and down from 14 per cent a year ago.
Lower turnover and restricted supply mean growth for 2017 is expected to plateau at between 2 per cent and 3 per cent, according to Richard Donnell, research and insight director at Hometrack.
Mr Donnell said: “We don’t expect year-on-year falls in our London index in 2017, but there are small price falls in localised markets, typically those with average prices of between £600,000 and £800,000.”
Aamina Zafar is a freelance journalist
Key points
The fall in house prices is due to a combination of factors including Brexit and the recent general election.
The beginnings of a squeeze on households’ finances might also be constraining the demand for homes.
The largest price falls are in Greater London.
