MyHome Insights: September 2018

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Fionnuala Earley MyHome Insights image

Head of Market Insights, Fionnuala Earley, tackles the crucial developments in the housing market heading into 2019 in the UK, along with MyHomeGroup's home borough, Wandsworth.

Download the full MyHome Insights September report here.

Developments in the housing market

The whole of the UK housing market is in a stagnant state. Property transactions are flat as uncertainty and transactions costs are affecting buyers’ willingness to move. In addition, sellers are only adjusting their expectations of achievable prices slowly.

As a result, the lack of stock available to buy is causing delays in the time it takes deals to complete and extends the whole transactions process. Across the UK as a whole, transactions have been broadly flat since 2010 and the same is true across all the capital. The financial crisis had a big part to play, but policy changes in the form of changes to stamp duty have had an impact on the cycle too.

housing market cycle

The change to the new system of stamp duty in the 2014 budget had a significant difference on the transactions cost of moving for property over about £1 million. At today’s prices the difference in stamp duty under the old and new regime for the average priced detached home in the borough was 25%.

However, the mix of property in the borough is skewed towards flats. For the average priced property at today’s prices, the change to the stamp duty regime makes a big positive difference for buyers, saving about £4,000 or 21% at today’s prices.

Stamp duty

The change to stamp duty helped those buying less expensive homes by effectively increasing affordability. That in turn helped to boost demand and hence support house prices. London saw house price growth accelerate swiftly since about 2010. Low interest rates and the demand to live in this desirable area encouraged investors as well as owner occupiers to the borough, pushing up prices.

However, the effect of the change in stamp duty on confidence in the more expensive parts of the capital was severe. As activity slowed, so too did house price growth as those needing to sell or concerned about a market correction were willing to accept lower prices.  But also, the mix of property sales affected average price growth as the more expensive homes were also less likely to sell given the higher transactions cost.

While this change took place more than four years ago, it would be naive to dismiss the impact that it still has on activity and on prices. Owners have to consider how else they would be willing to spend the money that would otherwise be spent on tax. And even if the change in the stamp duty calculations mean that they are better off than under the old system, rising house prices mean that the cash cost of stamp duty has an effect on decision making - whether that be to stay put and extend, or just stay put.

housing market price growth

This is particularly important now as permitted development regulations, which relax the need for planning consents for certain sized home extensions, is due to come to an end in May 2019.

Prices have continued to grow across the whole country, but the past growth in prices in London have accumulated to large capital gains over several years.

Although capital gains have been much higher than the average for England and Wales, they have been lower than the London average of 60%.

The overall differences is affected by supply. There has been a significant addition to housing stock in the London Borough of Wandsworth over time. Over both the last five and ten year periods the growth of housing stock in the borough has been in the top 10 of London boroughs and significantly above the growth in London as a whole or England and Wales.

Top ten London boroughs for house prices

Wandsworth one of the most desirable London boroughs to live in, with attractions for all types of households. There are more than 45 conservation areas within the borough boundaries, ranging from traditional village centres in Battersea and Roehampton to residential areas around the Commons. But in addition, parts of the borough are undergoing big redevelopment under the Vauxhall, Nine Elms and Battersea (VNEB) regeneration programme.

Wandsworth map

Furthermore, already good transport links are set to improve with the extension of the Northern Line, upgrading to Clapham Junction station and the likelihood that Crossrail 2 with also pass through the borough in due course.

Wandsworth average earnings

Unsurprisingly these attributes attract demand and hence higher prices and wealthier residents. This in turn attracts local businesses to service the local needs of these residents, along with schools and other facilities. The combination keeps demand to live in the borough strong - from both existing residents remaining and new entrants wanting to move in.

Wandsworth is one of the largest inner London boroughs and also one of its most prosperous. Earnings by residents of Wandsworth are 15% higher than the average for London as a whole and almost 40% higher than the average for the country as a whole.

Wandsworth earnings and housing mix

That has big implications for the property sales market in the borough. With affordability much more stretched in Wandsworth, those able to buy tend to be wealthier and/or have access to other sources of finance, reinforcing the socio-economic characteristics of the borough, and meaning the pool of buyers is more limited than elsewhere in London where property is more affordable.

The Future

The future of the housing market in the UK and in London is significantly affected by the prospects for the economy.  While the Bank of England is confident enough in the pace of economic growth to feel happy to increase interest rates for the first time since 2009, there is a significant risk that economic conditions could weaken sharply if Brexit is not as smooth as the government or business would like. This is already having an effect on business and consumer confidence and is filtering into the housing market.  That should not be a surprise in the London market where such rapid house price growth is unsustainable. Expectations of future price growth have been moderating and the data is now beginning to show a significant weakening in the pace of growth in the country as a whole but falling prices in London.

Fionnuala at Skylark
Fionnuala discussing the housing market at our latest property insights event in Wandsworth.

And as we covered in our latest property insights event, Wandsworth too is seeing house price falls as demand and supply adjust to the riskier economic outlook. However, the mainstream prospects for the market remain fairly robust.

Prices in London are likely to fall in the rest of 2018 and in 2019 too, as buyers and sellers continue to adjust their expectations of achievable prices and as some landlords decide to leave the sector as a result of tax changes on their investments. Wandsworth will not be immune from this, and prices will fall in the borough too.  However, its desirable attributes mean that it will continue to be an area in demand, hence slowing the pace of any fall in prices.

Download the full MyHome Insights September report here.

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