After years of rapid growth, particularly in the south-east of England (see Chart 1), the housing market has started to cool off.
An average price rise of 3.8 per cent in the year to March 2017 is a semi-respectable figure, but the headline data from Halifax does not tell the whole story. The figure is less than half the rate of growth seen in the previous year. Add to that a series of clampdowns on the buy-to-let market, the shadow of Brexit uncertainty, and the prospect of a trickier period for the economy in general, and the outlook is less positive than it has been for some time.
Much has been written about the difficulty of getting onto the housing ladder in the first place, and although this is unlikely to be a problem for most advisers’ clients, the consequences of confronting this situation will also continue to reverberate across the housing market as a whole.
The housing white paper released in January recognised that changes must be made, and some alterations are already having an impact. The slowdown in buy-to-let lending seen in recent months is a result of the government attempting to tilt the market more forcefully in favour of first-time buyers.
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One of the problems identified by the white paper was the lack of incentives for housebuilders to produce more properties. This, combined with unaffordable prices, tighter mortgage lending rules and a rapidly ageing population, has seen moving activity stall and, in some cases, go into reverse.
According to the Council of Mortgage Lenders (CML), there was a near-30 per cent drop in loans for house purchase among home movers between December and January. For advisers, of most relevance may be the impact that last year’s stamp duty rise has had on those looking to add to their portfolios.
Introduced in April 2016, the 3 per cent duty on additional residential property purchases was another measure aimed at aiding first-time buyers. It means that for an average freehold residential house purchased in November 2016 in London, stamp duty now amounts to almost £14,000.
Sarah Drakard, financial adviser and mortgage broker at London, Kent and Hertfordshire-based Evolution for Women, says aspirational home movers, with a wish to retain their first property once they have moved, are changing plans as a result.
“I’m getting a lot of enquiries from people that have got their first flat, for example, and maybe realise that they’d like to buy a house.
“Eventually, they realise that it’s now a lot harder to keep both properties, so I think the majority have decided not to.”
The increased costs involved in switching could also have an impact on the wider market, particularly at a time when slowing price growth may already be encouraging some to stay put. This represents a concerted change from recent trends; prices in London and Cambridge have risen by some 85 per cent since 2009, according to the Hometrack UK City House Price Index. Even the two worst-performing areas, Glasgow and Newcastle, have recorded growth of 16 per cent over that period.
