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Uncertainty abounds in the general economy
Consumer and business confidence fell sharply at the time of the Brexit referendum, recovered somewhat thereafter but has taken another bad hit following the General Election. However, markets have responded well to the election result, believing that it makes a business-friendly Brexit (sometimes called a soft Brexit) more likely, with the prospect of a long transition period and a free trade deal with the EU to soften the impact on business. Medium term – 2020 – outlook is therefore more encouraging.
EY Item Club Summer Forecast (uses the HM Treasury model to forecast)
With wage growth in the doldrums, inflation saps the strength of consumption and is demand-deflationary, as we saw in the early years of this decade. Investment and exports are unlikely to offset the slowdown in consumption and the forecast sees GDP growth on 1.6% this year with 1.3% next year. They expect 1.8% GDP growth in 2019 and 2.0% in 2020. Inflation looks set to be back down to the 2% target by the end of 2018 and base rates are expected to be on hold until August 2018
The mortgage market is expected to remain relatively subdued. Unsecured lending remains very high and will continue to be used heavily by consumers while inflation remains high and wage growth is subdued. House price inflation is falling back towards 0% by 2018, forecast to remain there through 2018.
Conveyancing market overview
The UK Conveyancing Market Briefing 2017 notes that from 2009 onwards the residential conveyancing market had been improving slowly through to 2016 but then declined in the second half of 2016 and the first half of 2017. In the first quarter of 2016 there was a spike in transaction volumes prior to the 31st March 2016 deadline for the Stamp Duty Land Tax changes imposed for additional properties. Since then and up to the middle of 2017 the market has been largely subdued and the number of house purchases for 2017 is generally expected to fall
Between 2011 and 2016, the number of practising conveyancing firms in England and Wales fell by 26% from 7,677 to only 5,689. The number of practising solicitors working in conveyancing in England and Wales has also decreased by over 3,000 between 2009 and the start of 2017.
The author forecasts growth in residential conveyancing market value of less than 2% at current prices in 2017. A majority of conveyancers surveyed for the report are anticipating some volume growth in the next 12 months but market uncertainties are likely to limit this volume growth.
Housing market sees very patchy, very localised changes
According to Rightmove, the London market fell by 2.4% in June. Inner London fell most (4.2%) but the picture is patchy with Kensington and Chelsea leading annual growth in London (16%).
In the past it has been the case that trends begin in London and spread to the rest of the country. The national fall in June was just 0.4% according to Rightmove and 1% according to Halifax. Nationwide disagrees and says it saw a monthly rise of 1.1% and annual growth at 3.1%.
Some commentators are now beginning to consider the possibility of a major house price crash, but the consensus at the moment is against this.
In one way the London trend is reflected nationwide because the picture varies considerably at the local level across the country as across London. Kate Faulkner points to ‘an apartment in Sunderland sold in in 2008 for £250,000 [and] just sold in April this year for £85,000’. She also points to 4% rises in Northern Ireland but that’s on prices that are down 45% from their peak. There have indeed been house price crashes, but they have been very localised. Any future crash may be less severe than past experiences because of current responsible lending and so much less chance of negativity equity becoming a widespread problem.
Clearly the massive reduction in buy to let activity and the government’s commitment to build more houses, are both downward pressures on price over the long term as is the low disposable income of potential buyers at the moment because of high general inflation. However, as RICS points out, the sheer lack of supply continues to support prices for the time being.
The May report from RICS pointed to ‘a lacklustre set of overall conditions once more, with enquiries, instructions and sales all declining over the month’. Respondents expected little change in the coming three months. The June report found house price growth weakening again.
Conveyancing transaction volumes seem steady overall with anecdotal evidence of significant local variation.
Office for National Statistics report
The report published on Tuesday showed that house prices continue to increase – although the increase has slowed it is still close to 5% with the fastest growth outside London. ONS uses Land Registry data. The report shows annual house price growth slower since 2016 but remains faster than the 2 to 3% growth reported by Halifax and Nationwide, the two most significant lenders, in recent months.
The report also reported that the number of houses sold in the UK slumped 41% year on year in March. This is largely because March 2016 was boosted by buyers rushing to complete before last year’s stamp duty changes. In London, transactions fell by 57% (62% in Inner London).