{"id":3413,"date":"2017-11-05T22:10:43","date_gmt":"2017-11-05T22:10:43","guid":{"rendered":"https:\/\/bb.pixelanddot.dev\/market-update\/november-2017\/"},"modified":"2025-12-15T14:15:44","modified_gmt":"2025-12-15T14:15:44","slug":"november-2017","status":"publish","type":"market-update","link":"https:\/\/www.black-brick.com\/insights\/market-update\/november-2017\/","title":{"rendered":"November 2017"},"content":{"rendered":"

<\/a>Forecasting season begins<\/p>\n

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It\u2019s that time of year again when the main estate agencies start to predict what the future holds for the UK and London property markets in 2018 and beyond. First off the block with its annual forecasts is real estate firm JLL. Its recent research report<\/a> notes that Brexit and affordability will work to dampen activity in London, while limited supply and continued international appeal will support prices. It is forecasting 8.7% price rises in Prime Central London over 2018-22.<\/p>\n

Savills has also released its latest forecasts<\/a>, predicting a much more bullish 20.3% for PCL over the same period, as well as a more modest 10.3% for Prime Outer London. It forecasts a subdued couple of years, but \u201conce a degree of uncertainty starts to clear, we should see growth, when London will appear comparatively good value,\u201d it states.<\/p>\n

Strutt & Parker\u2019s latest forecasts<\/a> allow the agent to have its cake and eat it. It offers both a \u2018best case\u2019 PCL price forecast \u2013 where prices rise 23% in the five years to 2022 \u2013 and a \u2018downside risk\u2019 scenario. That latter has prices flat overall to 2022, after tanking 5% next year.<\/p>\n

This wide spread between the various forecasts \u2013 even from the same shop \u2013 illustrates the need to treat price predictions with caution, to look at broader trends \u2013 and to be prepared to invest for the long term.<\/p>\n

Meanwhile, leading private bank Coutts has also published its first quarterly index of Prime London property, covering 15 areas and 60 postcodes across the capital. It shies away from forecasting prices, beyond predicting that they are likely to remain broadly flat, and its headline findings will come to no surprise to readers of this newsletter: it reports prices back to 2013 levels, down 11.8% below their 2014 peak. It also notes that, while price declines are slowing, discounting on prime properties is widespread, and averages 9.3% on the asking price.<\/p>\n

However, the report is worth reading for its breakdown of the factors at play in various parts of London, covering central London, north London, west & southwest London, and the super-Prime market. It also provides price performance for each of the 15 regions, going back to 2013.<\/p>\n

\u201cCertainly, looking back at historical data shows that forecasts \u2013 while interesting \u2013 are rarely accurate,\u201d says Camilla Dell, Managing Partner at Black Brick. \u201cThe variations from agency to agency, and even within the same firm, highlight the importance for buyers to take impartial and independent advice. It\u2019s worth remembering that most forecasts are from agencies who primarily act on behalf of sellers.\u201d<\/p>\n

\u201cOur view is that the next few years are highly uncertain, and the best-case scenario is for flat prices, although there will be opportunities to be had, particularly with new build, and exchange rates are likely to remain favourable for overseas buyers.<\/p>\n

\u201cIn this market, more than ever, property should be considered a long-term investment,\u201d Dell adds.<\/p>\n

<\/a>Rates on the rise, but resilience is expected<\/p>\n

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It\u2019s an extraordinary record: the quarter point rise in interest rates by the Bank of England\u2019s Monetary Policy Committee on 2 November marks the first rise in interest rates for a decade. It is not likely to be the last: the Bank has signalled that this is the start of a gradual series of rate rises, designed to hold down inflation.<\/p>\n

What does this mean for London property? Any increase in borrowing costs will weigh on prices. Certainly, ultra-low interest rates have supported the affordability of London property, in particular, even as prices have risen as multiples of earnings.<\/p>\n

But we believe that the effect will be muted. As the Bank said in a statement, this does not herald a return to interest rates at the level seen before the Global Financial Crisis, when the base rate stood at 5.5%. “All members agree that any future increases in Bank Rate will be at a gradual pace and to a limited extent,” it said.<\/p>\n

With borrowing costs remaining at historically low levels, countervailing forces keeping property prices steady or growing are unlikely to be reversed. Last month, we discussed the levelling off of price declines in Prime Central London: other analysts are also spotting green shoots.<\/p>\n

Camilla Dell, Managing Partner at Black Brick comments: \u201cThe bank rate rise from 0.25% to 0.5% will not have an enormous impact on the prime central London property market \u2013 rates are set to stay at historic lows for some time to come. The financial markets are indicating two more interest rate increases over the next three years, taking the official rate to just 1%.<\/p>\n

\u201cIn recent years, we have seen tighter controls on mortgage lending and, although rates will continue to rise in the years ahead, this will be done gradually, so we don\u2019t expect to see lots of distressed properties becoming available for sale.<\/p>\n

\u201cWhat\u2019s more, many of our clients purchase with cash, meaning that this will not affect them or their decision to buy a property.\u00a0The bank rate rise will not herald a significant change in prices. It\u2019s business as usual for the London property market.\u201d<\/p>\n

\u201cMany of the factors that have supported prime London in the past \u2013 limited housing stock, its status as an international city, the importance of its financial sector \u2013 will underpin the market even as borrowing costs rise,\u201d she adds.<\/p>\n

<\/a>Rental market proves its worth<\/p>\n

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Despite efforts by the government to discourage buy-to-let investment, there is a reason for continued strong interest in the sector: the attractiveness of rental yields compared with other investment opportunities. The Bank of England may have cheered savers with this month\u2019s quarter point rate rise, but the fact is that savings accounts are still paying dismal levels of interest. Landlords will welcome the latest data highlighted by estate agency Chesterton\u2019s, which reports rents continuing to rise across the UK. <\/span><\/p>\n

According to figures from Homelet<\/a>, the average monthly rent in the UK is now \u00a3927, up from \u00a3908 in September 2016. Rents in London average \u00a31,593, 1.9% higher than the same period last year. <\/span><\/p>\n

Chesterton\u2019s also cites figures showing that 55% of private tenants have lived in the same property for five years or more. Declining turnover, with the associated costs, is also good news for landlords. <\/span><\/p>\n

“With the political and economic issues that have affected the UK property market in recent years, both landlords and tenants are becoming increasingly attracted to the stability offered by long-term tenancies and are open to agree much longer terms at the start of the tenancy,”\u2028says Richard Davies, Chestertons’ Head of Lettings.<\/span><\/p>\n

We expect rents to continue to rise as rental supply continues to tighten: while the tax treatment of buy-to-let is less favourable than it was, which is likely to encourage some landlords to leave the market, it is likely to take some time for any increases in public-sector housing stock to feed through to rents. <\/span><\/p>\n

That view is shared by Savills, which forecasts rents in London rising 17%<\/a> over the next five years.<\/span><\/p>\n

Property also remains a good hedge against inflation, which is currently around 3%, above the Bank\u2019s target of 2%. However, potential buy-to-let investors should be cautious on the amount they borrow to invest in the sector: it is less tax-efficient than in the past. <\/span><\/p>\n

On the demand side, meanwhile, we have noticed a marked increase in the number of Black Brick clients using our Rental Search Service<\/a>. <\/span><\/p>\n

\u201cSo far this year, 30% of our clients have been looking to rent, double the number from this time last year,\u201d says Black Brick Partner Caspar Harvard-Walls. <\/span><\/p>\n

\u201cOften clients who are relocating to London prefer to rent first, before committing to an expensive property purchase. The cost of making the wrong decision on a property is huge given where Stamp Duty rates are.<\/p>\n

\u201cOur service often involves familiarising clients with an area first, and renting is an ideal way to do so. Once clients have had chance to live in an area they are much better equipped to take decisions on whether to buy there permanently or not. Our Rental Search Service is the ideal solution for clients relocating to London, students studying or visiting the city on a temporary basis,\u201d he adds.<\/span><\/p>\n

<\/a>Looking ahead to the Budget<\/p>\n

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The property market will be nervously awaiting Chancellor Philip Hammond\u2019s budget, due on 22 November: under his predecessor, George Osborne, they were frequently an excuse to increase taxes on property buyers. The good news is that changes in rates are not expected \u2013 but there are plenty of possible tweaks on the cards.<\/p>\n

Below, our guest writer Sean Randall<\/strong>, Head of Stamp Taxes at KPMG, and author and editor of Sergeant & Sims on Stamp Taxes, gives his predictions for the 2017 Budget.<\/p>\n

The likely<\/em><\/p>\n