The UK Property Market Forecast for 2019

The UK property market has remained resilient and steadfast in the midst of the economic and political uncertainty caused by what can be called the "largest political shock” to the UK in recent times. With the Brexit decision the uncertainty would be resolved to some extent. Let’s look at how the property market is expected to perform in the aftermath. Overall UK property price growth is expected to be broadly flat and stable, although with significant regional variation. London and southern regions will experience a fall in house prices while northern regions will have moderate gains.

Market Performance in 2018

The UK residential market gained a ￡187 billion in the last year, a growth of 2.7% which is higher than other prices in the economy in the same period. Savill reports that the UK residential property market value was a record ￡7.29 trillion in 2018.

The broader view of the UK property market in 2018, amid Brexit uncertainty, was of stability and continued growth. There is significant regional variation with regions outside London accounting for much of the gains in the market for 2018. Wales recorded the highest gains of 6.3%, closely followed by East and West Midlands with percentage growth of 6.2% and 6.1% respectively. In terms of gains in value of stock, South East region grew the fastest by adding a value of ￡29.9 billion. In contrast London experienced a fall in property prices by 1.5%.

Forecast for 2019 is expected to be similar, until a Brexit decision is reached which will bring clarity to a certain extent.

Brexit and other concerns

The major factor affecting the UK economy is the Brexit. Since the 2016 Referendum, it has affected investment in multiple sectors, with the property market being no exception. With a few weeks for the Brexit outcome, transactions in the market have slowed down due to buyers delaying their decision. The pent-up demand for property is expected to revive post Brexit irrespective of the outcome.

Prices are expected to remain subdued in the short term. The economy and consumer confidence is expected to improve during the latter part of 2019 and into 2020 onward. Post the Brexit decision there will be greater certainty which will have a positive impact on the UK property price growth. Improved economic, business and consumer confidence is expected from 2021 which will result in a flourishing property market with increasing number of transactions. Savills predicts the London and Southeastern property markets to be the first to respond.

 Affordability concerns especially among first time home buyers as well as a shortage in the stock of homes are two other pressing issues for the UK property market. Lack of affordability will have an unfavourable impact on the number of transactions as well as house price growth. Stock of new housing has dropped by nearly 9% from 196000 per annum to 179000 per annum in the first quarters of 2017 and 2018 respectively.

The Bigger Picture

According to Halifax, the subdued price growth is testament to the resilience of the UK property market. Even amidst the economic uncertainty the market has held up well and is in no danger of a crash or significant downward movement.

While the immediate focus of the market and the UK economy is on the Brexit impact, ultimately it is the more fundamental factors of demand and supply that will determine the market. On the supply side there is a shortage in stock of houses. However, there is a strong demand side with high levels of employment, increasing real wage growth, low inflation and the huge budget surplus recorded in January. These will balance each other out to support price growth. Thus while the fundamentals of the market remain strong, there is little concern about a market downturn.

Foreign Investment

Brexit has not deterred foreign investors in the UK property market. According to JLL almost half of the property purchases in the UK in 2018 were by foreign investors. The London property market, especially the higher end, remains a global favourite for investors of the South Asian region. Knight Frank reports that UK property remains at the top of the preferred investment list for the year 2019. There is a strong likelihood that the weakening pound will encourage more investment from international buyers.

Here is a breakdown of the regional outlook for 2019.

1. London

London market is expected to experience a fall in price growth by nearly 2% in the coming year according to some industry experts. The London property prices are declining, especially in Central London areas, due to Brexit uncertainty and stretched affordability among first time buyers.

Despite this fall in prices, London is still one of the prime property investment attractions to international investors. It continues to attract inward international investment surpassing other global cities like New York. London property market value is ￡1.77 trillion which is almost a quarter of the total UK property market value. In fact it is four times the combined value of cities like Manchester, Birmingham, Liverpool, Sheffield, Bristol, Glasgow and Cardiff which are all cities that experienced higher price growth in the last year. According to Avison Young analysts, UK and London in particular will “remain resilient” despite “significant headwinds” in the Brexit uncertainty and its aftermath.

2. Midlands

Some of the strongest price growth for 2018 was recorded by the East (6.2%) and West (6.1%) Midland property markets. While these regions are less impacted by the dynamics of capital city, uncertainty regarding Brexit decision and possible job loss in the manufacturing sector is a concern. Prices are expected to fall slightly in the first half of the year - West Midlands by 0.5% and East Midlands by 1%. Prices are expected to bounce back in the second half of the year with the uncertainty regarding Brexit outcome resolved. 

One of the major cities in West Midlands, Birmingham is having a positive outlook for 2019. It has increasing demand from the international buyers especially with the influx of overseas students in the city. The increased housing development projects in the pipeline and an even higher local demand is also driving prices higher. Birmingham is expected to be a potentially strong investment destination for 2019 and onward.

3. Southern Regions

Prices in the Southern region experienced a fall in the last year and this trend is expected to continue into 2019. Property prices in the East of England are expected to fall by 2% while prices in the South East decline by 1%. The South West region will also experience a slowing down in prices by around 0.5%. However, the South West market is supported by increased demand for holiday and retirement homes. Exeter is one of the cities in the region that has a lot of demand due to its strong accessible location especially to London.

4. Northern Regions

The Northern regions are expected to perform well in 2019. Hamptons International predicts the overall property prices in the region to increase by 1% this year. This is the highest growth prediction for any area in 2019. This growth is expected to continue in the next three years with a predicted increase in prices of 7%. Property prices in the Yorkshire and Humberside are predicted to gain by 0.5%. The northern regions are supported by high demand, high yields and lower affordability concerns.

Manchester has become an important residential property market in the UK with over ￡1.6 billion invested in the city centre for new private rental developments. Property prices have also seen a growth of 16% since 2016. With a reported average yield higher than property in the Greater London area, Manchester is expected to be a strong investment location for 2019.

5. Wales, Scotland and Northern Ireland

Compared to the rest of the UK, these regions performed well in 2018 where the property price to earnings ratio remained affordable. The trend is expected to continue in the upcoming years according to Hamptons International. Wales is expected to see a price growth of 1% in 2019 with Scotland prices increasing by 0.5%. Northern Ireland property prices are also expected to increase but at a less rate than Wales and Scotland.

The UK property market still represents a solid and resilient investment that has held strong in the midst of the political and economic uncertainty. While the market activity has slowed down in anticipation of the Brexit deal- no deal outcome, it is the common consensus that prices and transactions will revive in the second half of the year.

Statistics and data: Savills UK, JLL, Hamptons International, Zoopla, Halifax

Pictures: Google Images