South-eastern house prices: autumn come early

Tom Traill - 23 August 2017

London house prices have led a charmed life for most of the post-financial crisis period, buoyed by international and domestic investors, brisk population growth and disproportionate prosperity, aided by QE-supercharged asset revaluations. A heady combination of punitive rates of Stamp Duty, changes to Buy-to-Let rules and the unsettling effects of the EU referendum finally put paid to the London property bonanza last summer.

South-eastern house prices had weathered the Brexit storm much better, but the mood has soured noticeably since the spring. The outcome of the June general election has raised the spectre, should this government fall, of a seismic shift in UK politics and in the likely tax regime for housing wealth. A post-April squeeze in real after-tax household incomes may have been the final straw.     

Data from the Land Registry shows that affluent areas of the home counties such as South Oxfordshire, Windsor and Maidenhead, and St Albans have experienced falls in house prices of more than £10,000; down 3.6%, 3.0% and 2.4%, respectively, from recent peaks. There is anecdotal evidence of much deeper discounts offered by vendors eager to complete a 2017 sale.

According to the recent survey from the Royal Institute of Chartered Surveyors (RICS) a large majority of surveyors in both London and south-east England report falling prices: a net balance of nearly 50 per cent in London and around 25 per cent in the south-east. The regional data from the Land Registry is beginning to bear this out, with almost two-thirds of London districts and around one third of the 94 districts in the south-east now below their respective post-crisis peaks.

Countrywide, the UK’s largest estate agent, is expecting a fall in house price annual inflation from 7.4 per cent to just 1.5 per cent in the south-east, compared to a 2 per cent drop in London. However, at a national level, these declines are being masked by rises in the west Midlands, south-west and Northern Ireland. Further beyond the M25, property prices are well-supported by mortgage affordability as competition between lenders intensifies and depressed gilt yields.

While there are plenty of doomsayers, who expect a 10 per cent to 15 per cent drawdown in national house prices, such a sharp correction outside London and the south-east appears unjustified and unlikely. Property in London, particularly, and in the south-east to a lesser degree, is unevenly affected by Stamp Duty rates, Buy-to-Let rules and Brexit-related uncertainty. The most expensive homes are suffering the largest proportionate drawdowns in valuation. These are principally policy-related impacts rather than generalised economic impacts. The unemployment rate fell to 4.4 per cent in July. 

The Bank of England’s Financial Policy Committee will be delighted to learn that the bloom is off the rose in the effervescent property markets of London and the south-east. However, it is not the intention of this government to devalue national house prices. Economic deceleration will dampen market prospects in 2018-19, but Brexit-related concerns should restrain debt service burdens and prevent the forced-sale dynamic that we associate with sharp national price corrections.   

Data source: Land Registry

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