The Conservative majority, secured in the dying days of 2019, should finally draw a line under five years of a weak and unstable housing market across Central London.
We expect the government to use its strong electoral position to foster an atmosphere of confidence, decisive action and certainty in the economy, which will filter through to employment, earnings and the housing market.
Brexit is far from over, the trade negotiations are only just beginning but, the certainty of a clear intention from government will mean that it remains a secondary issue in the housing market. This election outcome transforms the outlook for the housing market over the next 12 months.
We expect a stable housing market in 2020 and can envisage a return to modest price growth in 2021 – seven years on from the first round of Stamp Duty increases in 2014 that have caused so much damage to property prices.
Homeowner’s finances are far more manageable than they were before the 2008 banking crisis as borrowers have used low interest rates to pay down their debts and this helps explain owners’ reluctance to sell in the current market.
In 2020 transaction volumes will increase and new buyer enquiries will emerge. If all goes according to plan, and the government signs the Withdrawal Agreement on January 31st. We fully expect to see an increase in sales activity building on improvements in 2019. We do not envisage price rises in 2020 as the market needs time to consolidate at new price levels and there is still resistance to price rises.
With yields and affordability back to 2013 levels there will be winners as well as losers in the current market. There is no doubt that a growing number of potential buyers and sellers have understandably been waiting for clarity on the future direction for the market once Brexit is resolved before making a move. For some, this is a rare opportunity to buy at prices last available seven years ago.
Whether sellers will be prepared to accept the new low pricing is less likely especially with many predicting a Boris bounce to confidence. Stock will probably remain low as confident owners wait expectantly for price growth to resume.
The Chancellor’s first Budget is now scheduled for February 2020. We do not expect the government to reform top end Stamp Duty rates in the short term because they need to fund ambitious spending plans and Stamp Duty has proved a reliable revenue generator for the Treasury even through the downturn in the transaction volumes in London.
Until there is reform of top end Stamp Duty rates, buyers will remain circumspect, buying for the medium term, or at least for long enough to recover the up-front Stamp Duty costs in price growth.
It seems likely that the Chancellor will announce policy on the overseas investors’ Stamp Duty surcharge in the February budget. Whether he will stick to 3% as proposed, or whether he will delay the start date, remains unclear at the time of writing but this government will not want to offend too many of its loyal supporters while it courts the new Tory faithful.
Overseas buyers have been returning to the London market buoyed by attractive prices and a weak pound. Future participation will depend on the date of introduction for the 3% additional levy on overseas buyers and the trajectory of sterling.
The issue of fire safety certification and questions over cladding systems used over the past two decades, will cast a shadow over the market until there is more guidance from the government on what they are prepared to contribute towards the refitting costs. Potentially onerous costs to replace cladding in new buildings will impact on home-owners, lenders, managing agents, freeholders, potential tenants and prospective buyers. There is an urgent need for clarity.
In the rental market, there are some substantial new schemes reaching completion in the next year at Kings Cross, Mount Pleasant, Shoreditch, Aldgate and Canary Wharf. This should ease the upward pressure in rents on the short term.
In the longer term, the downturn in new home construction starts in Central London will restrict the supply of new rental stock and that will cause rents to rise over the next 5 years, helping to maintain returns for investors. Lack of supply and additional landlords costs will continue to drive higher rents.
In the wider London economy, the focus will be on visas for science and technology as the government works to retain its status as a centre of excellence for these sectors alongside finance. The prime minister’s history of representing London will help to ensure that he is fully aware of these issues. London and the UK’s future success will now be linked to trade negotiations.
The development market will be reinvigorated only once there is tangible evidence of price growth in the market. Development costs are high in Central London and there is bound to be a Brexit impact on labour availability as well as material costs.
The outlook for London’s residential property market is more positive than it has been for some considerable time and we expect the green shoots of 2019 to take root in 2020.