A prosperous new year

The UK is coming to the end of a turbulent year for real estate, but Paresh Raja of MFS predicts a positive 2018 for those looking to expand their property portfolios

If 2016 was the year of shock political announcements, 2017 was set to be the year of transition for the UK economy. The EU referendum result in June last year was a profound and historic event signifying the beginning of a new era in British politics, and one that would have an enduring impact on all sectors of the economy, not least the property market.

In the ensuing months, the country witnessed the resignation of David Cameron and appointment of Theresa May as Prime Minister, as well as the base rate of interest being set to a record low 0.25 percent by the Bank of England. Yet, the economy proved resilient, becoming the fastest growing G7 economy in 2016.

At the beginning of the year, the outlook for 2017 was positive—the International Monetary Fund increased its UK growth forecasts from 1.1 percent to 1.5 percent, as a result of strong business and consumer confidence. Now, nearly 12 months later, the question beckons—was 2017 a year of progress for the economy and the property market in general, or do the same problems and questions hang overhead?

Laying down Britain’s post-Brexit future

In the opening months of 2017, the government set about laying the foundations for its visions of post-Brexit Britain. Central to this was the Conservatives championing the role of the private sector, sourcing international trade links outside the single market and releasing a new housing white paper in a bid to alleviate domestic demand for properties.

On 29 March, Theresa May triggered Article 50, formally commencing the 24-month Brexit negotiation period. Until this point, few details had been made public about the government’s approach to Brexit; consequently, people hoped that this formal process would bring about stability and clarification regarding the UK’s departure from the EU.

Two weeks earlier, in only his second fiscal statement as chancellor, Philip Hammond delivered a spring budget light on policy and reforms. Moreover, issues relating to the property market were largely omitted. Criticised by business and industry leaders in the property space as a missed opportunity, there was a degree of understanding that the new autumn budget later in the year would be heavy on policy reform.

Theresa May’s government brought into question

However, between 2017’s two budget announcements, yet more political drama was to unfold, in turn applying new pressure to the government and the economy as a whole.

In a bid to strengthen the Conservative Party’s hand as it began Brexit negotiations, on 18 April Theresa May made the bold decision to call a snap general election, which was to be held in June. Yet her gamble failed to pay off, resulting in a hung parliament and broader questions of confidence in her leadership. In the weeks that followed, the Conservative Party was able to strike a confidence-and-supply agreement with Northern Ireland’s Democratic Unionist Party (DUP), resulting in the formation of a minority-led government.

A resilient property market and the growth of bridging

Since the election, stalling Brexit negotiations and internal political disputes have dominated the press. But importantly, despite the political deadlock, the housing market remained impressively resilient. Undoubtedly hindered by political and economic uncertainty, property prices still rose 2.5 percent in the 12 months to November 2017, with the average house price reaching £211,085.

Meanwhile, the bridging industry performed even more impressively; in Q3 2017 the Association of Short Term Lenders (ASTL) revealed that the value of loans written by the organisation’s members had increased by a massive 38.9 percent, when compared to the same three-month period the previous year. Moreover, applications to bridging lenders grew by 45.5 percent in Q3 2017, compared to Q3 2016. This underlines the sharp rise in demand for bridging loans, with short-term finance evidently proving an increasingly popular option among many property investors.

The autumn budget—a step in the right direction

Following on from the chancellor’s underwhelming spring budget, November’s autumn counterpart was seen as an opportunity to deliver much-needed reform to the UK property market, particularly in terms of housing investment. Paving the way for the country’s post-Brexit future, the budget was geared towards innovation, infrastructure investment and the housing market. Heeding calls from the property industry to address stamp duty, the step was made to cut the tax for first-time homebuyers. However, for homeowners looking to upgrade or expand their property portfolio, there was little offered in the way of stamp duty relief. Nevertheless, it was a significant step in the right direction and another reason for optimism as the end of the year approached.

The autumn budget also focused on the housing crisis, with the government announcing its intention to increase the number of properties available on the market through the construction of new houses. Only time will tell if the government is able to meet its targets during the current parliament, but there are positives to be taken from the fact that property featured high on Hammond’s agenda.

Outlook for 2018

There’s no denying that 2017 has been another turbulent year for Britain. Little progress has been achieved in Brexit talks—few people are any clearer now than they were in January with regards to what the UK’s political and economic landscape will look like once the UK splits from the EU.

As we enter December, attention naturally turns towards the year ahead and what it has in store. Unquestionably, Brexit will dominate 2018, as it has the past 18 months. But, with the two-year negotiation period ebbing away, progress is far more likely in the months ahead.

For the UK’s property market, the latest predictions from Knight Frank suggest that house price growth across the will be 1 percent in 2018, but will reach 14.2 percent, cumulatively, between 2018 and 2022. As with 2017, it is likely that next year will be a period of stable and steady growth for property prices; with demand remaining high and stamp duty cut for first-time buyers, the signs points towards incremental increases.

In 12 months’ time, as clarification is obtained as to what Brexit will mean for the UK, it is foreseeable that greater confidence will return to consumers, businesses and investors. Subsequently, as 2018 progresses, the housing industry could once again return to more substantial patterns of growth, which may spark a rise in real estate investment as individuals seek to take advantage of opportunities on the horizon.

Ultimately, of course, such predictions are speculative. But the evidence of 2017 demonstrates the resilience and strength of the UK’s property market and, if the country does indeed enjoy a period of sustained progress and fewer political disruptions, there is every reason to believe that 2018 will see the industry continue on its upward trajectory.

Similarly, with the bridging market going from strength to strength in 2017, there is every cause for optimism as the New Year approaches.

The coming 12 months represent a significant opportunity for short-term finance to further establish itself as an attractive option for those seeking to consolidate or expand their property portfolio.
The latest features from Real Estate Investment Times
Leo Civelli, CEO of Duff & Phelps Real Estate Advisory Group, discusses the effects of Brexit in the UK, further challenges facing the European markets, and the opportunities that lie in the non-performing loan space
The UK is coming to the end of a turbulent year for real estate, but Paresh Raja of MFS predicts a positive 2018 for those looking to expand their property portfolios
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