The latest residential market survey from the Royal Institute of Chartered Surveyors (RICS) found that house prices in central London were already falling, with 35% of property professionals reporting a drop in prices in the past month.
The survey said that while prices are continuing to climb modestly across the rest of the UK, this is unlikely to remain the case, with 10% of respondents to the study anticipating a fall, rather than a rise in prices over the next three months.
This is the first time that a fall in prices has been predicted since 2012. London is expected to be worst hit, with 43% of respondents saying that prices will fall over the next quarter, followed by East Anglia, with 33% predicting a drop there.
Simon Rubinsohn, chief economist at the RICS, said the key theme in house prices going forward was “uncertainty”.
“It’s evident both on the demand side – our new buyer enquiries series has now fallen for two months in succession – and on the supplier side, new instructions coming on to agents’ books has resumed their downward course after a little blip upwards in the early part of the year,” said Rubinsohn.
“The impact on the wider market is still relatively modest.
“If you look at national figures, agreed sales were slightly down in May but generally remaining reasonably firm.
“The central London market is now clearly the weak spot across the country with sales dipping.”
He said that RICS near-term indicators are pointing to numbers for the wider market flatlining over the summer, with London remaining a weak spot for a few months to come.
Rubinsohn said that it was unlikely that a more affordable market will emerge in the near future.
“Sadly, for the many young people looking to enter the property market, it is unlikely that we are seeing the emergence of a more affordable market. Instead, it appears to me that what we are looking at is a short-term drop caused by the uncertainty resulting from the forthcoming EU Referendum coupled by a slow-down following the rush to get into the market ahead of the tax change on the purchase of investment properties,” he said.
The survey revealed that in the longer term, while house prices are thought likely to regain momentum, rents will outpace them, with UK rents predicted to increase by 4.7% year-on-year for the next five years, compared to house price increases of 4.1%.
With a deluge of BTL properties likely to start coming onto the market from 2017/18 as the tax changes start to bite, as well as the likelyhood of increasing interest rates, it is hard to see in my view much growth left in property prices for a good number of years. In addition FTBs will snap up these properties and start to let out their spare rooms to help with their mortgage payments. Therefore this is likely to reduce rental income for landlords as well. Investors have been warned that this is the top of the market in this cycle and it is time to disinvest!
What do you suggest they invest in Colin ? What will you allow them to put their hard earned money into now ?
Cynical Broker, I would suggest cash until the global markets become a lot clearer. However the glory days of vast capital appreciation in residential property are over for the time being I am certain that goverment taxation policy has achieved that. The aim of the Treasury is to “cool property prices” in order to help the younger generation get on the property ladder at the expense of investors.
Colin, four things! Firstly I would have thought an IFA might have recommended something safe like gold in these trying times, rather than cash ? Also if property prices fall, then those people who’ve bought at higher LTV’s 80 – 85% & above in the last couple of years are unlikely to sell which will restrict the amount of First Time Buyer property coming onto the market. Thirdly, landlords will be reluctant to sell in a falling market too & are likely to subsidise their investment until more favourable market conditions. Lastly if prices look like falling sharply, then lenders are likely to reign back on high LTV lending (90 – 95%), which they did back in 2009, & that in turn means those First Time Buyers are going to have to find more money for a deposit. The Treasury may have the very noble ideal of helping the younger generation on to the property market, however poorly thought out taxation attacks on the private landlords of middle England are unlikely to yield the desired results.
Cynical broker, gold is very high risk and not suitible for many investors level of tolerance to investment risk. Post the Referendum cash and gilts have been safe havens but I still could not sugest gold. I am not sure you are right as I still think many thousands of landlords are going to sell especially when the reduction in tax relief starts to bite. I think they will sell off and just manage their CGT liabilities the best they can.