Against the background of several months of encouraging data and what the National Association of Estate Agents described as 'post-Budget boost' in April, which saw increased numbers of buyers and sellers, and strong sales, experts are predicting more difficult times to come for the UK residential property market.
The Hometrack Monthly House Price Survey for May found all the key market indicators showing a pronounced slowdown compared with previous months. The volume of sales agreed grew by 2%, but this was well down on an average increase of 9.6% per month during the previous three months. However, the survey report concluded that, against a backdrop of continued low transaction volumes, equity-rich households have the capacity to keep the housing market ticking over for the rest of the year. Looking ahead, it predicts that the greatest threats to the housing market will be higher interest rates and the changes to capital gains tax.
Yolande Barnes, head of residential research at Savills, says, "The main direct impact on the housing market will be the emergency Budget and the resulting degree of austerity and all its implications for the economy ... Already, the announcements on capital gains tax have led to the possibility of second homes flooding the market and the exodus of small landlords from the investment market."
The Association of Residential Letting Agents (ARLA) is predicting that the new capital gains tax regulations could pose a threat to the private rented sector by creating a shortage of supply as investors look to sell off their portfolios. They may also, it believes, deter future investors from entering the sector.
Quoted in Knight Frank's Residential Market Update for May 2010, Liam Bailey, the firm's head of residential research, says, "With the ongoing Eurozone sovereign debt crisis, and with the UK seemingly under threat of infection from a similar market response, the result of the general election was probably the worst-imaginable option for the UK economy. While a stable Conservative and Lib Dem coalition should go a long way to minimising the risks to the housing market from higher interest rates, the short-term outlook has become markedly more uncertain."
According to Jones Lang LaSalle's latest UK Residential Market Forecast, while average UK house prices have proved resilient in 2010, with levels currently 13.6% higher than during the trough in the market in Q1 2009, there are signs of price growth slowing. The forecast expects the annual rate of growth to fade during the remainder of 2010, ending down 1% across the UK and flat in the London market by the end of the year. On a more positive note, it expects 2011 to show signs of market stabilisation, allowing time for the economic recovery to be fully embedded by 2012, and it says that the outlook for the housing market remains strong over the medium to long term.
Meanwhile, all eyes will be on Chancellor of the Exchequer George Osborne as he unveils his emergency Budget next Tuesday (22 June).
