From a U-turn on the stamp duty land tax hike to price growth forecasts and the outlook for the rental sector, here are the frontline property market predictions for 2017.
1. Here’s hoping for a u-turn on the stamp duty land tax regime
Matt Tooth, LendInvest Chief Commercial Officer, predicts the property market will get worse before it gets better:
“I predict UK economic growth will slow in 2017 and that we will see a fall in mortgage lending and a drop in the number of property transactions; this will lead the Government to reformulate its housing policy by year end to be more even handed and less interventionist, starting with a plan to reduce the level of stamp duty across the board.”
The latest stamp duty land tax hike has, many argue, been a key factor in the recent slowdown in transactions. The reduction in sales activity above £1m in the last six months alone will have resulted in a loss to the Exchequer of nearly £0.5bn, London and Cambridge Property calculates. For many this is ample evidence the Exchequer has shot itself in the foot.
Ian Thomas, co-founder of LendInvest predicts “2017 will be the year of the U-turn. It will become clear that stamp duty land tax revenues are declining as a result of the increased taxation on higher value homes and second homes. It will also become more obvious that the current tax regime is indirectly suppressing the supply of new housing, countering the government’s wish to see new housing across all tenures.”
2. Supply will continue to be a problem
As the housing deficit looms large, more Government money is being funnelled into housebuilding, planning laws are being relaxed, and public land is being freed up for development. But the effects will not likely be felt in 2017. The supply problem will continue, which some predict will prop up house prices to an extent during the year.
“The fact is the demand is still there, people still want to live in London. With the prime and super-prime markets reportedly seeing a notable reduction in sales, the same is not true of “standard” residential schemes. Rental and sales values at this end of the market are unlikely to change significantly. Mass housebuilders do not seem to have put any of their major schemes on hold,” said Mark Stevens, Director, Gleeds Cost Management.
The property firm JLL is predicting that new housing starts in England will drop in 2017. “Although levels of new housing delivery were still woefully low prior to the referendum at least the direction of travel was positive and encouraging,” said Neil Chegwidden of JLL’s residential research team. “This will now fall back again.”
Taking the Homes and Communities Agency Home Building Fund into account, Steve Larkin, Director of Development Finance at LendInvest, predicts “the HCA Home Building Fund will ramp up and we will see them become more prevalent in the marketplace working to generate more development.”
He also predicts that with the Government focused on radically boosting housing supply there may be a tax rebate for developers working on modular-built housing schemes.
3. London house prices to cool
According to the latest data from Land Registry, the annual rate of growth for the average UK house price slowed from 7.7% in January to 6.9% in October. In London, this is more pronounced: a slowdown from 13.5% in January to 7.7% in October.
The estate agent Knight Frank forecasts a 1% fall in London house prices during 2017, compared with 7% growth the previous year: “Looking into next year we believe that the slowdown in prices which has been evident in central London over the past 12 months will spread to the wider region, with Greater London prices down marginally in 2017.
This slowdown in the capital will likely be experienced across the rest of the country with price growth down notably on 2016 levels.” Knight Frank forecasts 1% house price growth in the UK during 2017, down from 5% in 2016.
4. Prices could be set to rise outside London
At an annual rate of 7.7%, London’s house price growth fell into third place in October among the UK’s regions, according to the ONS. In second place was the South-east, which saw prices rise 9.1%, and the East of England was top with 12.3% growth.
Savills predict zero growth for 2017, Lucian Cook, director of residential research at Savills said: “We expect the strongest price growth to be the South-east and East of England over the next five years, with price growth in London curtailed by affordability pressures. Towards the end of this period, markets in the Midlands and the North will show more capacity for house price growth, though much will depend on local economic drivers. Tax changes are expected to cause investors to shift their focus to some of these higher income yielding lower value markets.”
5. 2017, the year of the professional landlord
Outlining predictions for the rental market in 2017, Chris Norris, Head of Policy, Public Affairs and Research at the National Landlords Association (NLA), said: “Rents will rise, but perhaps not as dramatically as some commentators are predicting. Following a year of regulatory and market shocks, there are many suggesting that rent rises will be necessary to cover landlords’ costs. However, while the cost of accessing accommodation may rise, it should not be assumed that the ability of tenants to pay is completely elastic. In addition, there are signs that, in parts of the UK, households may be reaching the limit of their ability to absorb inflation.
“In London specifically, NLA members are reporting reduced tenant demand, despite the chronic undersupply. This will no doubt force landlords to reappraise their approach to letting property and whether it is still in their interest to persevere with traditional lets.
“In terms of lettings activity, 2017 is likely to be the year of the ‘professional landlord’. ‘Either do it well, or don’t do it at all’ should be the watchword for the private rented sector (PRS) and the increased pressures of 2017 will make the decision a harsh reality for many.”
6. From buy-to-let to build-to-rent?
Ian Fletcher, Director of Policy (Real Estate) at the British Property Federation, said: “The Government has been shifting towards a more multi-tenure approach post-Brexit referendum, but [The Housing Whitepaper] will be the first major opportunity to see what that means in practice and the White Paper will set the tone and direction of policy, not just for 2017, but for the next three years.”
Predicting Build-to-Rent will feature strongly, he said: “2017 will provide a great opportunity to present Build-to-Rent to the wider world as we move from a phase which has been about creating opportunities for investment through funding, planning and construction, to one that focuses on the buildings, their management and occupier satisfaction.”
7. Builders will be busy, estate agents less so
The picture varies across the UK but “stagnant” and “slow” are words that continue to crop up as people from across the property industry manage expectations for 2017. Against a backdrop of expected price sensitivity and liquidity issues in the second-hand home market Sinead Canning, director of Residential Edge said:
“Lots of British based buyers will need to move: life events will precipitate the need for bigger, smaller or different properties. Anecdotally, I am hearing stories of long, complicated property chains reminiscent of the 90s.
“Patience and perseverance will be the name of the game here. Extensions, loft conversions and garden rooms will abound as people seek to avoid higher stamp duty and long property chains. Expect your local builder to be very busy! Unfortunately your high-street agent is going to be less so.”
8. Geo-politics will continue to create a cloud of uncertainty
Out of the Autumn statement this year came the Chancellor’s National Productivity Investment Fund. It includes a £2.3bn housing infrastructure injection (to support 100,000 new homes) and a further £1.4bn to be spent on building 40,000 new affordable homes. But until the detail is finessed it’s difficult to speculate about its impact.
The Government is set to begin formally exiting the EU by March 2017. President Trump has taken office in the US, making his political and economic impact on the world clear. And Marine Le Pen of the far-right Front National will continue her run for the French presidency, which, if successful, could put the very existence of the EU under threat.
For Ian Thomas, LendInvest co-founder 2017 will be “the year the Government has to start delivering on housing within an uncertain political environment”.