Brexit fatigue fuelling house price and volume rises: September 2019
02/10/2019
We really are in the final straight re: Brexit – if all goes as many expect, then we leave at the end of this month – unless an 11th hour move means the saga continues. And given what's happened in the last 3 years, you simply cannot rule this out. But what are the current pointers in our housing market data indicating? Have people finally had enough and are now deciding to make purchases because they can't wait any longer?
Our heading this month is drawn from the recovery in house price levels in England & Wales and, even more welcome, a month-on-month sales volume increase. There's also good news on real wage growth – about time, many would say – meaning house purchases might become that much more within reach. All of this is discussed below.
Even the capital has some metrics which offer some grounds for optimism, but overall the housing scene there remains largely in the doldrums.
Tax changes likely to cause Buy to Let exodus in the run-up to April 2020
In other news of great interest this month, the Telegraph has flagged up that various tax rules affecting the buy to let market are due to be changed in April and these alterations are likely to see numbers of buy to let landlords leaving the market and cashing in before the March deadline.
Private residence relief to be cut in half
Private residence relief exempts any growth in the value of a second home from tax for the final 18 months of ownership, protecting who have moved into a new home before selling their old one.
However, from April 2020, according to the Telegraph, property investors will be forced to pay tax on an additional nine months’ worth of capital gains and at a rate of 28%.
Lettings Relief to narrow
This less-well-known tax break means home owners could claim up to £40,000 in Capital Gains Tax (CGT) protection on a main residence which has been let for a certain amount of time, which helped, for example, people who moved in with a new partner before selling their own home, for example, or work abroad for a year.
But from April 2020, this relief will only apply to homeowners sharing their home with a tenant, meaning higher tax bills and smaller profits on sale for many landlords.
Regardless, Landlords can still benefit from general CGT reliefs. The first £12,000 of any growth in value of a sold investment is exempt and spouses/civil partners can combine their tax-free allowance, giving them up to £24,000 of protections.
England & Wales: average price data
House prices for England & Wales have hit their highest average ever - at £244,800 - admittedly this is actually only barely 0.2% above August 2018's previous high of £243,539, but it certainly continues the story of the unpredictable nature of the wider property market.
There were both monthly and yearly rises (0.5% and 0.2% rises respectively), in keeping with the last 3 months' data, giving some evidence of a mini-recovery, certainly in terms of price data.
Monthly volume increase but large yearly drop
Volumes traded as recorded for the most recent month's available figures presented a more nuanced picture: a month-on-month rise of 6.1% has to be greeted by all pundits as a good thing, however the yearly position gave a more realistic perspective. With 63,049 houses sold in June 2019, this was a large 28.5% lower than for June 2018, when 83,400 houses were sold.
London: average price data
The optimism which might accompany the present average price data for England & Wales was diluted regarding the capital's figures. There was certainly a monthly rise of one per cent for August, meaning average prices in the capital rose to £477,813, but this still remains considerably below July 2017's peak of £488,527 and additionally the year-on-year position still remains a gloomy one.
For the all but one month out of the last 17, average prices in the capital have fallen year-on-year, albeit that the actual percentage fall for August, 0.3%, was the smallest decline since May 2018 (also 0.3%), minor grounds for optimism for an area where good news has been sparse to say the least.
Capital's volumes rise monthly but yearly position remains sub-par
There were 5,917 completed sales recorded for the capital in June 2019, a month-on-month rise of 7.1% from May's 5,498. It has to be stated however that May's volumes were the lowest since the last housing market crash, so a rise might be regarded as more probable.
The year-on-year picture, however, reiterated a more 'business-as-usual' gloomy situation: volumes fell 31.8% compared to last June year-on-year volumes have fallen for the last 5 months in a row now.
Inflation and wages
Inflation had paused in monthly terms in June and July however for August it was recorded as rising 0.46%. In yearly terms, inflation has held solid at around a 2.0% rise for the last 5 months.
According to many pundits, because the UK's economy is reliant on imports in many sectors, the danger is that a disorderly Brexit might – if only temporarily – see inflation rise by a considerably greater magnitude.
Real wages rise overall
Wages rose to their highest recorded level ever - £542 per week – and notably the montly rise – 0.6% - exceeded the monthly inflation rise and the year-on-year situation was even more encouraging, with a 4.2% rise.
Taken together, the evidence suggests that for July, people on average became better off in terms of real wages, the only damper being that wages have been held down for so long that this is long overdue and will hopefully continue (and, of course, rise to the level which might increase volumes of homes traded!)
Could we finally be witnessing actual real wage growth?
Mortgages and Remortgages
Mortgage approvals, seasonally adjusted, fell both year-on-year and month-on-month in August, to 65,454, from July's 67,011 (by 2.2% and 0.9% respectively). Remortgages rose month-on- month, from 47,620 to 48,515 (1.8%) however year-on-year they fell by 6.0%.
It's a challenge to draw large inferences from these movements. One could make a case that people have been staying put and investing in homes already bought rather than buying new ones and moving up. Once again Brexit could be posited as a reason for this.
But that said, and given the signs of some price and volume recovery noted earlier, it might be that there's been an increase in 2nd home (and more) movers moving and paying with cash, possibly because they're fed up with the Brexit crisis.
Certainly this might indicate a drop in first time buyer activity, something which is nearly always considered in the National Association of Estate Agents' monthly housing market report discussed below.
NAEA claims 'Summer Surge' of home buyers
In tune with our title, the National Association of Estate Agent's (NAEA) most recent housing market report (for August), lead with claiming a summer surge for house hunters ahead of the coming Brexit deadline.
The report's key findings were as follows:
- Demand from prospective buyers increased by 37% in August
- Supply of available housing also increased
- The number of sales agreed per branch remained high for the fourth consecutive month and the number of sales to first-time buyers (FTBs) remained the same
- More than four out of five properties sold for less than the original asking price
Demand as measured by house hunters registered per member estate agent branch increased month-on-month to 433 from 316 and year-on-year, this compared to 320 last August.
Houses available – i.e. supply – increased from 41 to 44 over the month and this was also an increase compared to last year's 40 in August 2018.
The number of sales remained 'high' for the fourth consecutive month, according to the NAEA, averaging 9 per month, which was the same as for July.
First Time Buyer Sales Steady
Referring back to the question of first time buyer numbers mentioned in relation to mortgages/remortgages, the NAEA stated that the number of sales made to this cohort remained the same in August as for July, at 26% of all sales (a 6% increase on August 2018).
This steadiness cannot therefore explain the rise in mortgage approvals, making it more likely that it's home movers who are losing patience with the Brexit process and are pressing on with their planned sales.
(Stuck record time…) Some 85% of properties sold for less than asking price in August…this economic anomaly continues…
Andrew Boast, co-founder of SAM Conveyancing, said:
"The curious phenomenon we suggested was happening in last month's roundup appears to have developed to a more obvious degree i.e. there's even more evidence available this month that some home buyers who'd put off home purchase decisions have finally run out of patience with the seemingly unending Brexit process - which even now cannot be guaranteed to have a concrete end date."
"Combining mortgage approval and first time buyer data suggests that it's home movers in the main who make up this group of buyers - and additionally there isn't much positive news available regarding people who haven't bought before."
"This isn't to say that signs of a moving market aren't to be welcomed - sales volumes have been in the doldrums for so long, particularly in London, that stakeholders will certainly greet the data, particularly for the wider area of England & Wales."
"The media reportage of coming tax changes which are likely to impact the Buy to Let market negatively suggests that we should carefully observe data for this sector as the months in the run-up to next April unfold, which is when the changes are fully rolled out. "
"A Buy to Let exodus would mean many things, starting with an increase in new sale instructions in the short term however the medium term effects are unclear, not least because the manner in which Brexit occurs - if in fact it does occur - is likely to have a large effect itself."
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