Housing: what’s next?

12 Jun 2017

Property prices are falling, but experts are holding on to the hope that this will not last for long. After all, with a vast housing shortage, demand should be at an all-time high – so what is next for housing if the market turns stale?

The underlying trend for the previous three months has revealed a 0.2% overall drop in the price of property, but it is unlikely that prices are going to tumble as per the years of the recession.

There are some good explanations for the recent dip in prices. For one, UK incomes have become static as many sectors are still experiencing pay freezes or changes in contracts that make people more nervous about committing to a property purchase.

Recent changes to the buy-to-let market have made it more expensive for landlords to purchase investment properties. Without these buyers on the scene, there is less competition for others in the market, which will inevitably lead to a house price stall.

But, whilst this should be good news for first time buyers, the scale of the decline in this sector has been so dramatic that it could take years to recover to the same levels of under-40s homeownership as was the case during the 1960s.

You might therefore expect there to be growing pressure on the rental market. With landlords put off their purchases, what will happen to the number of houses to rent? Will rentals be forced up due to short supply and high demand? Actually, it appears the opposite has happened.

It is not only house prices that are falling. London is experiencing the biggest drop in rentals; the average monthly rent on a new tenancy in May 2017 was £904 which is 0.3% less than the May 2016 figure. This is the sharpest fall since December 2009 during the throes of early recession.

Other areas of the south east, as well as the north east, Scotland, Yorkshire and Humberside, also saw rentals drop between 0.6% and 2.3% on average, so London is not alone and it appears to be part of a wider trending pattern. Landlords will now be facing pressure to balance their own rising costs with competitive market rental rates.

Why has this happened? Some are attributing it to London’s international market. The upcoming Brexit could have had an effect on incoming migrants – numbers of which are already falling.

Others believe it’s simply due to the unaffordability of property for such a long time. If a large number of people accept that they will never own their own homes, then there will be no pent up demand when sales turn stale.

If you are a property investor, landlord or first time buyer, then our Real Estate team at DMH Stallard are well-placed to advise you on any next steps relating to your property purchase. Contact us if you would like any further information.

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