Never an average year

Cumulative Land Registry figures for Kent, Surrey and East Sussex show an overall fall in sales of 16% for the first four months of 2018, compared with last year. This looks (and feels) dramatic, but is less than 5% below the average for the decade following the 2008 financial crisis. Since that crisis began there have been, as the graph shows, great swings in sales volumes, with this year set to go back into the negative. Where might we be going from here?

General figures mask differences within the market. Our own sales statistics show highest demand for family houses under £1 million and close to town centres (or, rather, good schools and train stations). Prices are steady, even rising slightly. Demand ebbs either side of that, both for smaller houses and apartments (affected by increases in supply) and for larger houses, hit by high stamp duty.

For the sales and rental markets, amongst the most important leading indicators this year has been the much higher proportion of tenants wanting a one year term with a six month break clause, reversing the position of recent years, when two years was the norm. These people are planning to buy, soon. At the same time, some landlords – especially the “accidental” ones – are selling up, often to former tenants. The pressures of these changes on prices and rents thus largely cancel each other out, though landlords should reasonably expect a higher rent, for a shorter term.

Might values, having fallen substantially in central London, do so here? Might the rental sector shrink as rapidly as it grew? In the absence of unexpected increases in interest rates, we think the answer is ‘no’ in both cases, mainly because of population growth. Central London’s property price inflation was fuelled by non-resident overseas buyers. In contrast, Kent’s population, for example, rose by 131,300 (9.2%) from 2008 – 2017 and continues to grow. All of these people have to live somewhere. This adds to demand primarily at the lower end (especially rentals), but also higher up, as London buyers continue to move out. The Londoners invariably want to buy, though often after renting. As a result, after taking the effects of high stamp duty above £1 million into account, we expect changes in prices and rents to remain small and led by general inflation and affordability, and for sales volumes to recover a little. If they do, this could prove to be the first ‘average’ year we have seen, for a decade.