A cocktail of growing inflation, stuttering wage growth and Brexit uncertainty could cause house prices to slump leading experts have warned, in another sign the housing market could be feeling the squeeze. This may leave a sour-taste with those buy-to-let investors already struggling after a number of government raids on the market.
UK property prices could plunge by 40%, London School of Economics Professor Paul Cheshire told the Daily Mail, due to a medley of factors, including declining real wages, higher stamp duty and Brexit uncertainty.
In the new ebook Safe as houses?, Moneyfarm found that changes to the tax regime, recent hikes in Stamp Duty, and tighter mortgage lending restrictions have impacted the profitability of the buy-to-let market.
The dynamics of the housing market
The last 20 years have been great for property prices, fuelled by decades of chronic undersupply and increasing demand on the back of government reforms to stimulate the market. The average house price in the UK rose over 40% to £218,000 between 2009 and February 2017, with the average London home nearly doubling in value to £475,000¹.
But the affordability of this thriving housing market now looks stretched. In 2016, buyers needed nearly eight times their annual salary to buy a property in the UK².
And warning signs are starting to flash; the number of homes being sold for less than their asking price jumped to 77% in May, with just 3% of properties going for more than asked³.
June itself is traditionally a popular period for the housing market, but last month real house prices fell for the first time since 2009. Data from property portal Rightmove shows the average price of a home fell £1,172 (-0.4%) in June, although Brits are still buying, with the number of sales being the second highest in a decade.
These preliminary signals are just that, early indications that sentiment is changing – the writing is by no means on the wall. As the housing market can be quite volatile month-on-month, eyes will be on house prices for the half-year to identify any clear trends.
We can’t say whether the next 20 years will be as good as the last, but we can say the landscape looks strained.
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The problem with property is that all your money is in one asset that’s exposed to a single market in one particular region. By its very nature, you can’t enjoy the benefits of diversification with a small buy-to-let portfolio.
Is the buy-to-let market under threat?
Although its affordability has diminished after years of buoyancy, property is ingrained in British family life. It’s why buy-to-let is favoured by so many; you can walk past a home, hold the keys and easily understand what it’s like to live in.
When it comes to protecting your money for your family’s future, buy-to-let is often a first-choice for those looking for income and capital growth. But with clouds forming above the property market, has the investment case behind buy-to-let softened?
Those who look to buy-to-let to provide them an income and hope for an increase in the value of the house have to think about the market in the same way as they would any other investment. When the landscape changes, you need to do your homework to see if your money is protected.
We’ve published an ebook that looks at how the buy-to-let market has changed in reaction to the recent government reforms and discusses whether investors can still count on generating the returns they once did. It covers the business of property, cost considerations and potential returns, as well as the alternative investments available.
Download your free copy of Safe as houses? A closer look at buy-to-let investments, or purchase a Kindle version for £2.99.
1 Office for National Statistics, House price index, February 2017
2 Office for National Statistics, Housing affordability in England and Wales 1996-2016
3 The National Association of Estate Agents