Residential

Residential house price forecast - what we can expect from the property market in 2018 and beyond?

Q1 2018

The residential property market last year was characterised by a striking difference in house price growth between the UK and London.

According to Nationwide, UK house prices grew 2.5% in 2017. In contrast in Prime Central London (PCL) prices fell around 3% in the last year. The national picture was driven by strong growth outside London, with the East Midlands, South West and West Midlands all experiencing over 4.5% growth. 2018 looks set to continue the trend of steady, albeit unspectacular, UK house price growth of around 2.5%, while prices are forecast to be flat in Prime Central London, with a downside risk of 5%.

Stephanie McMahon, Head of Research at Strutt & Parker said, “The five-year forecasts remain difficult to predict, as so much still rests on the outcome of Brexit negotiations and the attractiveness of the UK as a place to live, study, work, do business and invest in five years from now.”

“Traditionally the most buoyant housing market in the UK, London experienced a slowdown following the EU Referendum and this may continue until 2020. Regional hotspots are likely to be the drivers of UK house price growth in the meantime, with 18% growth forecast for the UK over 5 years to 2022.”

“Necessity breeds invention, and in a slower market more innovative housing solutions may come to the fore. This would include more offsite construction and modular buildings to speed up delivery, and maximising living space through increased density on a plot of land. This can be viewed in tandem with residential trends which are supported by innovative design and ethos, including Micro Mansions and YoYo homes, which allow for changing living patterns through flexible internal spaces.

The Numbers: Residential House Price Forecast

Sales 2018 2019 2020 2021 2022 5 Year Growth to 2022
Prime Central London - best case 0% 4% 5% 6% 6% 23%
Prime Central London - downside risk -5% 0% 1% 2% 2% 0%
UK 2.5% 2.5% 4% 4% 4% 18%
Lettings 2018 2019 2020 2021 2022 5 Year Growth to 2022
Prime Central London - Lettings 1% 1.5% 2% 2.5% 2.5% 10%

*As at Q3 2017. Source: Strutt & Parker, Volterra

Look out for the Growth Corridor

Delivery of new housing in the UK was given a boost in the Budget in November 2017, and the Government reiterated its commitment to the Cambridge-Milton Keynes-Oxford growth corridor. The East West rail link and Oxford Cambridge Expressway will reconnect the two historic university cities and help support the delivery of one million new homes by 2050. Paul Sutton from Strutt & Parker’s Development & Planning team in Cambridge commented: “House prices in both Cambridge and Oxford have been driven by high demand and low supply, built around the popularity of our world class Universities. More high-tech industry will need a lot more housing, and increasing supply in the bordering commuter towns and villages works towards the greater goal of delivering ‘England’s Silicon Valley’.”

Lettings

“In Prime Central London, lettings look set to outperform sales in next year, and experience steady growth in the long term,” comments Kate Eales, National Head of Lettings at Strutt & Parker. “Properties which offer well-arranged accommodation close to transport links will remain a good bet for investor landlords prepared to hold for the medium to long term.”

“The proportion of households in the rented sector is growing, and research by Strutt & Parker indicates that although the majority may still wish to own at some point, a preference for long term renting is beginning to emerge. 48% of those who responded to our Urban Renters survey last year had been renting the same property for at least the last two years, with 24% of tenants anticipating renting as a family in the future.”

“In the Budget, the government indicated it would consult on the barriers to landlords offering longer tenancies in the private rented sector. We have seen over the last 3 years an increase in tenancies being agreed for longer than the average 12 months, so this signal by the government is to be welcomed. Long-term tenancies can offer stability and security to both parties. However, the weight of regulations with which landlords must comply is increasing, so any further changes need to be equitable for both landlords and tenants.”

“The changes in taxation and other rising costs of ownership are not making it easy to be a landlord, and could deter new investors considering Buy to Let. Our ‘Housing Futures: Urban Renters’ report released last year with Stanhope and Network Homes concluded that the UK is on the brink of a large-scale commercially developed, owned and operated Build-To-Rent (BTR) sector. In the years ahead we expect to see more mixed developments of Build-To-Sell and Build-To-Rent homes.”

Prime Central London sales

For the prime central London market, 2017 has been all about ‘appropriate asking price adjustments’ and flexibility to keep things moving. Charlie Willis, Head of London Residential Agency at Strutt & Parker, says: “Prime central London tends to be ahead of the curve in reacting to the political and economic mood, and it experienced a marked slowdown a year and a half ago. Seller expectations are realigning in most situations, with appropriate asking price adjustments. As we head into 2018, we envisage seeing a more active market with an increase in the number of buyers and sellers alike.”

Barclay Macfarlane, head of Strutt & Parker’s Fulham office agrees that although buyer registrations are up and the market is improving, values are likely to remain flat. He says, “Overall, pricing is likely to remain incredibly sensitive and those sellers that are too ambitious with their asking price simply will not get any traction. My advice to buyers is not to worry about thinking you might be insulting a vendor by making a low offer. A high percentage of all vendors will offer some flexibility on their asking price, so it’s worth a try, particularly if the property has been on the market for a long time. Vendors want certainty and speed, price is important of course, but some buyers will opt for a slightly lower offer if the buyer is able to proceed.”

Prime Country House market

“The country house market this year kicked off to a great start,” says James Mackenzie, Head of Strutt & Parker’s National Country House Department. “After taking on some big Georgian manors, a busy January and February was indicative of the changing seasonal market. Historically, spring and summer has always been our busiest months, but this time it was the very start and very end of the year that proved most active.”

“Our London buyers significantly dropped during the year. Once a 50/50 split between city and country, it’s now dropped to 40/60 in favour of those already in the area. Replacing these buyers have been expats taking advantage of the weak pound by paying in dollars. Keeping our market alive for most of the year, they often come from the Middle East and Asia, looking for classic British architecture next to top schools. We sold a beautiful Georgian country house just outside of Bath earlier this year at a guide price for £3.95m, which only attracted international interest and went to a Chinese buyer – the start of a wave of interest from overseas purchasers looking secure big classic manor houses in Bath. In fact, a higher percentage of our buyers this year have been looking for city centre locations, and this trend only appears to be increasing.”

“Other standout sales include Youngsbury in Hertfordshire which sold privately on the second viewing in just three weeks. The Old Rectory, Duntisbourne, was another notable success. Two weeks after its launch and 55 viewings later, a sale was agreed above guide price at £2.51m. Both houses were competitively priced, a message we are taking through to 2018 for our prime country sellers: sensibly priced houses will find buyers. In spite of continued Brexit speculation, the UK is still viewed as a safe haven, with stable land prices & capital growth, home to some of the most architecturally rich properties in the world. South Buckinghamshire and villages around Gerrards Cross are areas to watch for house price growth next year now that HS2 has been established and Crossrail nears completion.”

“The number of private deals transacting in 2017 is 20% up from the previous year. As political and economic confidence continues to fluctuate, many country house sellers feel more at ease with a private sale rather than a public one. This means it is more important than ever before for buyers to not solely rely on online searches – register with agents to remain on their radar for top draw stock. Private deals we have done this year range from £5m to £20m!”

Waterside and coastal markets

Richard Speedy, Head of Strutt & Parker’s Waterside Department and Exeter office, says: “We are a nation obsessed by property and an island with some of the most versatile coastlines in the world, from the rugged North Sea to the sandy beaches along the Channel. With property and waterside living part of our inherent culture, many homeowners I speak to value this lifestyle incredibly highly and are prepared to pay a waterside premium for the most sought-after spots. Our Waterside survey results earlier in the year showed that 61% of respondents wanted to live near to water in the future - with 62% of these hoping to live on the coast, 10% on a river or estuary, 15% on a lake or loch and 4% on the banks of a canal. In fact, for 10% of respondents, living near the water was a lifelong dream. Around 65% of our buyers for coastal property in the South West are from London and the South East, which is up from last year.”

“Thanks to this steady demand, even in the winter months, house prices have remained stable and confident moving into 2018. During the past 3 months, there has been a 27% increase of buyer registrations for waterside property compared to the same 3-month period the year before. Location is king, and top towns include Topsham, Salcombe, Itchenor, Margate, Aberdovey, Alnmouth and North Berwick.”

West Midlands is a booming market

Kevin Boulton from Strutt & Parker’s Ludlow office, says: “We have had an outstanding 12 months in Ludlow with a 30% increase in the number of houses sold year on year. Lifestyle, community and price remain the three key drivers for buyers, who are traditionally semi-retired or downsizers. However, an increase in younger buyers from the south east with families has been a growing trend from the summer, and one we expect to continue in 2018 thanks to our top rated schools. Less buyers this year have been prepared to take on a project – modern finishes are hot property. Brimfield Lodge was one of our best sales of the year demonstrating just that – a handsome Georgian home finished to an exceptionally high standard inside. It exceeded its guide price, generating the highest volume of viewings we have seen for a property in 2017.”

“Worcester is having a huge revamp and will be a hotspot to watch in 2018, and with Shrewsbury and Hereford becoming university towns last year, their younger population has substantially grown. The county town of Shrewsbury to the north of Ludlow has benefited for some years from investment in Theatre Severn with further developments proposed for New Riverside Shopping Centre and a roll out of housing developments to cater for the increased demand. To the south, the cathedral city of Hereford has seen new shops & cafes open, and Ludlow has also seen dormant development sites now come online. All three locations are surrounded by glorious countryside offering an abundance of walks and other outdoor pursuits, whilst annual festivals in market towns and pretty villages continue to attract visitors throughout the year. Birmingham is also considered commutable from the Ludlow area, so our region in general is on the up.”

North commuter belt hotspots

Although the Hertfordshire commuter market was effected last year by the London slowdown, Rozanne Edwards, Head of Strutt & Parker St Albans, believes their are areas that will see increased interest in 2018. She says, “the Crossrail Effect is set to reach the north commuter belt thanks to the Metropolitan Line extension to Watford Junction, and proposed new rail link under Crossrail 2 connecting Broxbourne, Cheshunt and Waltham Cross to London. Hertfordshire’s council has recently announced support for schemes creating sustainable travel towns, cycling route improvements, a potential Hertford bypass, A414 road upgrades, as well as proposals for new garden villages.”

Yorkshire prime country market

The North is becoming a hotspot for those priced out of the cotswolds, says Luke Morgan, from Strutt & Parker’s National Country Department. “The Cotswolds is becoming quite regionalised, everyone wants to be on the eastern boundary near Dalesford, Soho farmhouse and the M40 - north Oxfordshire up through to Stow on the Wold – which is pushing prices up here, so more people are looking to the North as an alternative, especially edge of village houses near Harrogate. Those buying in Yorkshire tend to be a mix of locals upgrading and natives returning home after making their money in London. They might be looking to bring up their family here, or retire in familiar surrounds. You don’t get many people buying here who don’t have roots in some way. The Yorkshire Dales is massive for grouse shooting and often attracts sporting buyers and equestrian enthusiasts – our reams of rolling hills and national parks preserves this rural beauty perfectly.”

“Yorkshire should hold up its values more than other counties in the north. There are more transactions of country homes in Yorkshire than in any other northern county. Georgian houses are the most desired – people love their symmetry and proportions. This year I have had more buyers ask me for houses with long tree lined driveways and privacy – the idea of a grand entrance and private land either side to ensure their piece of England is protected. A great example of this Otterington Hall.”

North East coast attracting more interest

Samuel Gibson, Head of Strutt & Parker Morpeth, says: “Competition is fierce for those special beachfront properties, and those in the seaside village of Alnmouth have recently been selling above guide price. These colourful homes line the Aln estuary attract year round interest thanks to its deserted beaches, bird sanctuaries and plenty of good local pubs. Its exceptional mainline train station takes you smoothly and efficiently to Newcastle, Edinburgh and Kings Cross – you don’t get links like this anywhere else in the north east. You can go from the train straight to your house! We had a house for sale next door to the station where the buyer had to travel to Edinburgh for work and already new the timings from Alnmouth would be cut from an hour to 48 mins thanks to planned rail improvements. The faster timetable is definitely attracting more buyers and will continue to be a big attraction for three-day-commuters in 2018. Alnmouth’s station car park keeps having to expand to meet the demand! This builds on the fast commutability that the Flying Scotsman provides from Newcastle – a non-stop train leaving at 10 past 7, getting you to your London desk by 10!”