What will 2017 hold for the London housing market?
We put some key questions to our resident property guru, Mark Lawrinson, plus reveal our key predictions and potential property hotspots that buyers, sellers and investors should be aware of this year.
But first, let’s quickly recap 2016...
2016 was certainly an eventful year. House prices ballooned beyond belief, we saw the additional 3% stamp duty for the purchase of second homes and investments come into effect, and the Bank of England cut interest rates to 0.25%, making mortgages the most affordable they’ve been for years. Our new Mayor, Sadiq Khan, opened the Night Tube and set out plans for more “genuinely affordable” London homes.
But despite Khan’s efforts, affordable housing is still a primary problem and concern for the majority of Londoners - and the issue is exacerbated by the fact that sales volumes in the capital are now at historic lows.
The year culminated with Phillip Hammond’s first Autumn Statement, in which he pledged to ban Letting Agents in England from charging fees to tenants, in an attempt to help disheartened Generation Rent.
Through all this we experienced a number of political shocks. EU Referendum jitters dominated the summer months and then the shock Brexit vote left the country - and the property market - in a period of uncertainty. Across the pond we were shaken by another political shock as Donald Trump won the presidential election. This year we will find out how profound the effects of these events will be. Here's our outlook for the property market in 2017...
1. Prices will soften or continue to rise slowly
Buyer affordability was stretched to the limits in 2016. Currently, the average house price in London is the highest it has ever been at £580,600 - and prices simply can’t continue to increase at this rate. Sales transactions in London also dropped dramatically since the Stamp Duty changes came into effect in April last year, now down 60% in prime central London versus last year.
The combination of Brexit, blown up prices and falling volumes mean that price growth is most likely expected to slow this year, with prices in prime central London and the most expensive boroughs likely to soften.
And though Brexit will by no means solve Generation Rent, slowed price growth and the fact that mortgage rates are expected to remain super low will come as welcome news to those wanting to get on the property ladder.
2. Biggest house price rises will be in Zone 3 outwards
Though we believe that prices will soften in prime central London, we still expect certain hotspots to experience price growth - though perhaps not at the level we’ve seen in previous years.
If it’s an investment you’re after, it’s crucial you buy in areas that are undergoing gentrification or experiencing infrastructure investment, that offer healthy yields so mortgage repayments aren’t a problem.
Areas in the outer Zones are likely to experience the best price growth this year. Zone 5’s East Croydon is becoming the capital’s next big property hotspot. It’s currently undergoing huge development, offers key train links and the Gatwick Express, Westfield Shopping centre will soon be arriving, plus it offers a mix of luxury and affordable living ideal for young professionals.
Crossrail winner Forest Gate is also likely to experience further gentrification when the high-speed rail link arrives this year, which will keep house prices on their upward climb. Leyton is another east London pocket tipped for house price growth, and in fact, east London as a whole will be one of the best investment areas generally this year down to improving transport links and the fact that prices here are still “affordable” compared with the rest of the capital.
If you want to invest centrally, Farringdon is a safe bet, again thanks to key infrastructure changes such as Crossrail and the fact that the nearby silicone roundabout is becoming a great area in which to live, work and play.
Find out the top 10 places to buy or invest in 2017 here.
3. Valuation rush expected
George Osborne unveiled a shock tax change in 2015: the tax relief that landlords get for finance costs will be restricted to the basic rate of Income Tax. To put it another way, the current rules give most landlords a 40% discount on their current interest costs, but under the new regime, this discount will drop to 20%. This tax change will be phased in from will start to be phased in from 6th April this year and fully implemented by 2021.
There’s no doubt these changes will makes things more difficult for landlords, but the first thing to note is that landlords who are basic rate tax payers (earning less than about £40k), or those without a mortgage, won’t be affected at all.
Secondly, there are steps landlords can take to try and cut their interest costs. The first being re-mortgaging. Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago.
With large increases in property prices in London, another tip is to get your rental property re-valued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.
Click on our Instant Valuation tool to find out your property’s current value for sales or rental.
4. Will 2017 be a good year to buy?
For many Londoners, owning a home, a larger home or moving into a new area will be an important New Year resolution.
With volume typically leading price, as we said earlier, there is a chance property prices could soften, making this year a great time to buy. We have already seen a year on year price drop in Westminster, so if you want to live in the capital’s buzzing centre, you’re likely to grab a bargain. However, there’s no saying that this price correction will definitely ripple out to greater London.
Most importantly, it’s crucial you buy when you’re ready. Nobody can call or accurately predict the market and so it’s extremely difficult to try and time things to a decline or growth. If you’re buying a home, then holding off could be equally as detrimental as it could be positive. Currently money is as cheap as it can be to borrow, which makes getting on the ladder that bit easier and moving up it more affordable.
As London has proven in the past when it bounced back from the recession, it’s an extremely resilient city, so if you are buying with a medium to long-term view then your investment as a business or home is safe.
If you’re buying to invest or buy-to-let, then as long as you use the advice available to you, you can protect your assets and minimise any risk. Buy in an up-and-coming area experiencing gentrification or infrastructure investment, like the ones suggested above, and even in a weak market you’re likely to benefit from a boost in both rental yield and capital appreciation.
Check out where to find the best rental yields in London by clicking on our Interactive Rental Yield Map.
5. When is the right time to sell?
Again, there is no right or wrong answer to the question. If you need to sell to release money or trade up, there are buyers ready and waiting to take advantage of competitive rates and enter the market if the right house comes along. We are already starting to see overseas buyers return to the market, keen to take advantage of the weaker pound and softening prime London prices.
You will also have the advantage of limited competition in a limited marketplace, which could translate into a quick sale and a good price.
If you want advice to prepare for a move in 2017, give us a call on 0207 099 4000 and our team of experts will be able to give you some great advice.