Will House Prices Rise Or Fall In 2020 – And Where?!

Fri 17 Jan 2020

Jeremy Leaf, Principal

The election and more clarity on Brexit seems to have contributed to a much-needed recovery in HOUSING market confidence. This has been reflected in many more-than-usual market appraisals as well as a strong start to sales and lettings activity in the New Year.

Demand cannot remain pent-up indefinitely so we have not been surprised by the determination of some buyers to take advantage of improving affordability from almost record-low mortgage rates and rising real wages. 

The extent of any post-election ‘bounce’ will probably be determined not only by an ability to match buyer and seller expectations but early clarification of the UK’s future trading relationship with the EU. Any uplift is likely to be noticed most in areas where the ratio of house prices to earnings is low.

Prices are likely to continue to be underpinned by a shortage of supply and relatively low levels of house building while ongoing difficulties trying to raise deposits will keep demand in check.

Overall, London will probably continue to drag down average price rises in the rest of the country as affordability remains more stretched there than elsewhere.

Any upward pressure on prices is likely to be largely balanced out by the usual stock increases at this time of year but we should at least see a rise in the number of transactions. Transaction numbers are always a much better indicator of property market health than more volatile house prices.

The most comprehensive survey of the housing market in the UK, the ONS, reported in January that annual price increases had almost doubled i.e. from 1.3% to 2.2% - their fastest pace for over a year after three years of slowing down.

The UK’s largest mortgage lender, Halifax, reported in early January that house price rises in December of 1.7% were the highest since February 2007 just before the start of the financial crisis. The annual rise of 4% for 2019 compared with 2.1% twelve months earlier.

On the other hand, Nationwide said UK house prices were up by a more modest 1.4% in December, their fastest growth in a year and the first time in 12 months they have exceeded 1%. The building society said the weakest activity was in London where average values dropped by 1.8% (or £8,600) in 2019 mostly due to continued deposit-raising issues for first time buyers. Today’s typical 20% deposit is now said to be equivalent to the entire pre-tax annual income of an average earner as against to 88% ten years ago despite the market softening especially since the EU referendum of June 2016. Building society figures, though often reflecting market activity several months previously, are generally a useful guide to the direction of travel for the property market.

Prices are still apparently 33% per cent above those of 10 years ago compared with the 180 % increases of the 1980s and more than the average 20% rise in incomes during that period. The Yorkshire Building Society reported 353,400 first time buyers still stepped on to the property ladder last year - the highest number for 12 years. Nevertheless, values are said to be still only 5% below their all-time high-recorded in the first quarter of 2017- and around 50% above their 2007 peak!

Even buy-to-let landlords are slowly returning or not leaving the sector in as significant numbers. UK Finance said High Street lenders issued 6,600 investor loans in October - the second highest for 2019 matching their highest monthly value of £2.7bn for the year.

Phasing in of the reduction in mortgage interest over 4 years from 2017/8 and loss of the wear and tear allowance have contributed to higher tax bills for landlords. Also from April 2020, landlords who once owned and lived in their properties but rather than sell decided to rent, will find capital gains tax relief has all but disappeared and only apply where owners share occupancy with their tenants.

One of the reasons for landlords’ return is that the number of properties available to rent fell nationally by 7.8% in the first eleven months of 2019 – and by 11% in Southern England.

In London, the average monthly rent for a new tenancy reached £1724, almost three times the £641 average in the North and way above the £989 UK average. RICS reported rents will rise by 2.5% overall in 2020 bearing in mind new landlord instructions have fallen for 14 successive quarters and the rate of increase outside London is likely to be almost double the level inside the capital and South East.

For advice on whether prices and rents are moving up or down take advantage of Jeremy Leaf & Co.’s 30 years of first-hand knowledge and experience!