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Property Market Overview - December 2017As part of our drive to keep clients informed, we bring you an in-depth assessment of the property market and wider economy for December 2017.
Inflation remained at 3.0% in October but the OBR anticipate that it has now peaked and expect it to return to its target level of 2% in the next year. Meanwhile, their forecasts for economic growth have been downgraded to 1.5% in 2017 and 1.4% in 2018. In November, the Bank of England raised interest rates to 0.5%, the first increase in over 10 years. The increase will likely be passed onto borrowers, although more than 50% of new loans in recent months have been taken out on a fixed rate deal. Unemployment remains at its lowest level since 1975, according to official figures released by the Office for National Statistics. However wages are failing to keep up with the cost of living. While average earnings rose by 2.2% in the three months to September compared to a year ago, they fell in real terms, when accounting for inflation, for the seventh consecutive month.
House prices across the UK rose by 0.4% in September to take the annual rate of growth to 5.4%, up from 4.8% in August. Strongest growth is currently in the North West and South West with the annual rate of growth in London slowing to 2.5%. Over one-third (37%) of properties already on the market in November have reduced their asking price since first listing according to Rightmove. This is the highest proportion at this time of year for five years and a clear sign that sellers are over-optimistic in a tougher market place. The average reduction between initial asking price and current asking price and sales price is 6.3%. Annual house price growth across the UK's top 20 cities increased to 6.1% in October, with Manchester and Birmingham both witnessing growth of over 7.0%. However Hometrack report affordability levels, measured on a price to earnings basis, are now at an all time high in London (14.5%), with Oxford, Cambridge and Bournemouth also seeing double digit price to earnings ratios.
There were 105,260 residential property transactions across the UK in October according to the HMRC taking the total this year to over one million. October sales are 9.2% higher than a year earlier. The Treasury raised an estimated £2,625 million in stamp duty receipts from 251,000 residential property transactions during June-September 2017, up 23% on the same period in 2016. Over a quarter of sales across England, Wales and Northern Ireland were subject to the additional 3% levy on a second home, the 3% element netting the government an estimated £551m. Sales to date in 2017 are marginally down on 2016, according to the HMRC, thanks to the significant spike in sales volumes in March 2016. Sales over the last six months however, are 8% higher than in 2016 when the impending referendum vote and subsequent Brexit result caused uncertainty across the markets.
The level of mortgage approvals fell for the fourth consecutive month in October, with the number of loans approved 5.2% lower than in October 2016. However the value of mortgage lending rose to its highest level since March 2016, boosted by remortgage activity, ahead of the interest rate rise announced in November. In the Budget it was announced that first time buyers will pay no stamp duty on properties up to £300,000, effective immediately. Furthermore, they will pay no stamp duty on the first £300,000 of properties bought up to £500,000. The Government estimate this will benefit up to 95% of all first time buyers. The happiest place to live in is Royal Leamington Spa in Warwickshire according to Rightmove's 2017 Happy at Home Index knocking Leigh-On-Sea in Essex off the top spot into second place. Wirral came in third place.
Average rents across Great Britain rose by 1.5% in the 12 months to October, slightly down from the 1.6% recorded in the 12 months to September. The East Midlands continues to see the strong rate of annual rental growth, followed by the South East. The latest RICS survey reports that tenant demand remained fairly stable in the three months to October while there was a fall in the number of instructions to let properties. Rents are expected to rise by an average annual rate of 3.5% over the next three years, compared to 1% growth in average sales prices. On November 1st the government published its draft "Tenants' Fees Bill", which, if passed into law, will make it an offence for landlords and agents to charge up-front fees. Under the proposed new rules, holding deposits will be capped at one week's rent, and security deposits at the equivalent of six. Fines and criminal prosecutions will face those that float the rules. The draft bill will now have a six week consultation period.
The Autumn budget announced a suite of measures aimed at tackling the housing crisis. These include £44 billion of capital funding to help build 300,000 homes on an annual basis by the mid 2020's, a review into ways to speed up building once planning permission has been granted and £34 million investment to train construction workers. In addition, private house builders look set to benefit from an £8 billion financial guarantee scheme, while £2.7 billion will be invested into a housing infrastructure fund. Five new garden towns will be supported, along with £28 million for three new housing pilot schemes in the West Midlands, Manchester and Liverpool. According to the NHBC (National House-Building Council), the number of new private sector housing starts was down 6.3% in the three months to the end of October 2017, compared to the same period last year. In comparison, completion levels rose by 2.9%. Across the UK, there are close to 180,000 plots currently under construction, up 2.1% on October 2016.
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