The Brexit Effect: London Property Market Predictions for 2019

There’s no getting around it: Brexit is taking its toll on the London property market. The Resident takes a look at the 2019 property market predictions by some of London top property professionals with insight on the sales and lettings markets, house price growth, new homes and international investment. Rest assured, it’s not all doom and gloom…

London Sales

With average house price growth in London remaining relatively stable over the last six months, Jackson-Stops expects this trend to endure, but this is largely reliant on the outcomes of continued Brexit negotiations. London experienced no capital growth in 2018, but if a level of political and economic stability can be achieved between the UK and the EU, their property experts expect to see a modest recovery.

Robert Butterworth, Head of Research at Jackson-Stops London, said: ‘At present, a significant amount of buyers and sellers in London are holding off on making decisions before firm agreements have been made. We expect to see transactions increase next year unless the Brexit deal is particularly bad, as it is often economic and political stability that guides both sale and purchase decisions for clients, particularly in the central London market.

United Kingdom Sotheby’s International Realty anticipates transaction levels taking a short-term hit in the first few months of 2019 as domestic vendors adopt a wait-and-see approach ahead of the rescheduled vote on Theresa May’s Brexit deal.

Economic uncertainty and punitive surcharges in the form of Stamp Duty, foreign buyer levy announcements and capital gains tax changes have resulted in the continued stagnation of the London and country markets throughout 2018. This economic and political uncertainty is likely to continue impacting on the London market while the country transitions out of the EU in 2019.

Guy Bradshaw, Head of Residential at United Kingdom Sotheby’s International Realty, commented: ‘It is looking likely that parliament will vote on Theresa May’s deal in mid-January ahead of the 21st January deadline. We anticipate domestic buyers sitting on their hands in early 2019 as the Government seeks to broker a deal with the European parliament.  

‘No matter what happens with Brexit, London has enduring appeal at home and abroad as an international hub for culture, business and education. Compared with the geopolitical risks in many other countries, London is still a safe investment and will continue to attract buyers from around the world. While 2019 is undoubtedly a year of transition, I am confident that the prime central London market is moving in the right direction.’

Competitive pricing will be key throughout the year ahead, he continues, especially in the Prime Central London (PCL) market. Vendors who adopt a realistic approach to the price of their property will attract buyer interest as needs continue to dictate decision making.

Caroline Takla, Managing Partner of prime London buying agency, The Collection, adds: ‘The first half of 2019 is likely to continue at the same rate as 2018, with the ever-increasing uncertainty holding back much of the market.

‘In Prime Central London, bigger apartments will continue to increase in value. In Westminster for example, where new apartments now cannot exceed 150 sq m, values of these larger properties will increase as supply of them cuts off.

‘For many families however, it is still business as usual. Those making the move to a larger property can take advantage of the current market, being able to stretch into that higher price bracket property that was out of reach two years ago. The expectation that prices will rise post-Brexit means now is a golden hour for deal-making.

London Lettings

The number of rental property listings has depleted since summer 2018, due to what Jackson-Stops believes to be a direct impact of the financial restraints on the buy-to-let market, so it is expected that rental prices will increase as a result. The estate agent’s London lettings division saw prices strengthen over summer 2018, and prices are predicted to continue slowly strengthening over the New Year. They also expect to see a continued increase in super prime rental properties in PCL, boosted by the price sensitivity in the sales market.

Georgina Clarke, Lettings Director at Jackson-Stops London, said: ‘Despite Brexit fears, we are still experiencing strong levels of demand from corporate companies who are relocating their staff to London. We are seeing high levels of interest particularly from employees of large tech and IT companies, such as Google, who are looking for a base in the capital for around two to three years.

‘With Apple expected to establish its new London headquarters at Battersea Power Station, moving around 1,400 employees from its eight London sites, this new ‘campus’ will start to breathe life into Nine Elms next year. This, together with the new American Embassy, is likely to have a significant impact on demand for rental accommodation in the local area in coming years.’

The growing UK Sotheby’s International Realty lettings team has seen a key trend in the PCL letting market in the latter part of 2018, which they predict will continue into 2019.

James Somers, Head of Residential Letting at UK Sotheby’s International Realty, said: ‘Our lettings business has exploded in the last 12 months, reflecting a shift in the PCL market. One of the key drivers behind this has been the rise of ‘try before you buy’, which has been particularly prominent among families looking to upsize but who need to relocate to a new area to afford this. These families are able to achieve a strong rental income which is often enough to cover the rent of a larger apartment or house in suburban London while continuing to hold onto a valuable central London asset.

‘In recent months we have also started to see renters adopting a buyer’s outlook, taking longer to find the right property and even refurbishing properties to make them perfect for them before taking up tenancy. And it is not just soft-furnishings, but remodelled kitchens and entirely new bathrooms. We anticipate the trend for tenants operating like buyers to really take off next year as the rental market in London continues to expand and attract an increasingly diverse tenant profile.’

The November 2018 RICS UK Residential Market Survey confirmed that, in the lettings market, demand from prospective tenants is holding broadly steady, while new instructions crept up slightly.

London House Price Growth

Strutt & Parker announced in late 2018 that is it holding its forecast for UK growth at 2.5% for 2019 – with the 5 year forecast from 2018 to 2022 standing at 18%.

Stephanie McMahon, Head of Research at Strutt & Parker, commented: ”Total transaction levels for England and Wales in 2018 look to be relatively equivalent to those in 2017, when looking at the country as a whole. We would expect this trend to continue into 2019 with the number of registered buyers and viewing numbers gradually increasing.

‘However, the story in PCL is different and transaction levels continue to be low by historic standards. We have revised down our forecast for PCL house price performance which stands at 2% growth in 2019 as a best case scenario and -5% as a downside risk.

‘In London, we expect to see the possibility of further price decreases continuing into 2019. The prediction for the PCL lettings market is slightly more positive, with the forecast for 2019 at 1.5% rental price growth.

‘The likely outcome of Brexit negotiations remains extremely unclear, with the potential for this uncertainty to continue longer than we hoped for. Beyond 2019 it is extremely difficult to forecast the market with any certainty and we would expect some bounce back once more stability has returned. The fundamentals of the UK economy remain broadly positive, with sentiment remaining cautious.’

Notting Hill Bucks the Trend 

Notting Hill, famous for THAT movie, its annual summer carnival and pastel-painted terraced houses, is bucking the trend for conservative house price growth, according to Strutt & Parker.

Charlie Willis, Head of London Residential at Strutt & Parker, said: ‘Our Notting Hill office has had its best year in terms of volume of sales in 2018 since it opened its doors seven years ago; doing more than double the number of transactions in 2018 vs 2017.

‘Some properties, with price tags of up to £25 million, have sold in sealed bids situations within a matter of days. We anticipate another good year for the Notting Hill market in 2019, even against a very complex political climate, due to its beautiful houses that families want to live in for the long term.

‘UK domestic buyers now account for 80% of our transactions in London at Strutt & Parker and Notting Hill has really reaped the benefits of this revival of the British buyer in the capital.’

New Homes in London

Assuming the UK receives a positive outcome from Brexit negotiations, the property experts at Jackson-Stops envisage that current underlying high levels of demand in London will translate into greater levels of commitment in 2019. As a result, competition from buyers is expected to increase and fewer developments will be available with discounts or incentives.

In 2019, £1 million plus new-build homes will, however, become a rarity in London. Over the last 12-18 months, the majority of housebuilders have been focusing their attention on planning and building developments with homes suitable for first-time buyers, downsizers and families looking to buy in the sub-£1 million price bracket. Demand will therefore be high for £1 million plus pads, but is unlikely to result in any notable price increases.

Ben Babington, Director of Residential Development at Jackson-Stops London, comments: ‘Something many housebuilders in Westminster may have to contend with in the New Year is the Council’s plans to limit the size of new homes to 150 sq m. In theory, the idea of limiting the size of new homes in Westminster is sensible, although 150 sq m is arguably too small given the typical purchaser demographic in Westminster.

Given its Zone 1 location, properties in Westminster are always going to be priced at the premium end of the market and a proportion of wealthy home buyers in this area will simply need more space. This is particularly true of people who will be using the property as their principal home. By not offering the right housing stock to satisfy demand, there is a danger that Westminster may increasingly attract pied-à-terre buyers and buy-to-let investors, instead of permanent residents and families.’

The Brexit Effect 

Uncertainty caused by Brexit is causing buyers and sellers to sit tight in increasing numbers across the UK, according to the November 2018 RICS UK Residential Market Survey.

Looking at London, the results from the latest survey continue to show a weaker trend in sales with demand and supply falling once again – almost half of respondents to the survey across the UK cite political uncertainty caused by Brexit as impacting the UK housing market.

The number of people looking for a new home fell again in November in London (net balance of -14%, down from -11% in October), with many comments attributing this to Brexit uncertainty.

Another contributing factor is the continued limited choice of properties for sale. The number of new properties being listed for sale fell for the fifth consecutive report, and the net balance of -32% was the fastest pace of decline in supply since June 2016. This lack of new stock is impacting estate agents’ average stock levels with agents in the UK now only having, on average, 42.1 homes for sale.

With little choice for new buyers and fewer people interested in moving, the number of agreed sales fell in November. The London net balance moved to -34% from -16% and this sentiment is reflected in almost all areas of the UK.

Simon Rubinsohn, RICS Chief Economist said: ‘It is evident from the feedback to the latest RICS survey that the ongoing uncertainties surrounding how the Brexit process plays out is taking its toll on the housing market in general and in London in particular. Indeed, I can’t recall a previous survey when a single issue has been highlighted by quite so many contributors.

‘Caution is visible among both buyers and vendors and where deals are being done, they are taking longer to get over the line. Significantly the forward-looking indicators reflect the suspicion that the political machinations are unlikely to be resolved anytime soon. The bigger risk is that this now spills over into development plans making it even harder to secure the uplift in the building pipeline to address the housing crisis which is particularly visible in the capital.’

Hew Edgar, RICS Head of Policy added: ‘Prior to the referendum, our research indicated that Brexit would only impact the higher end of the residential market, as the lower and middle market areas are domestically driven. Now, however, it appears that those looking to buy and sell homes across the price spectrum, as well as those looking to invest in the UK’s residential sector, are putting off decisions until there is more certainty.’

Looking ahead, contributors don’t see any change on the horizon. Sales expectations, for the coming three months in the capital fell from -29% to –34% in November.

International Investment 

In early 2019, ahead of the probable introduction of a foreign buyer levy, the biggest driver for London’s prime property market will be foreign investment as individuals look to hedge their bets with the good currency play. Based on current interest in the UK market, UK Sotheby’s International Realty is predicting that American buyers will be particularly interested, with the exchange rate potentially offering US buyers a 25% discount on properties.

Investment from Asia is expected to continue with particular attention coming from mainland China, where education is key to buyers relocating to England to gain access to world-class institutions.

Guy Bradshaw of UK Sotheby’s International Realty commented: ‘We have already seen significant interest from American buyers who are eyeing up the favourable dollar to sterling exchange rate. The economy may look weaker today, but the property market is resilient and it is forecast to bounce back by 2023. Buyers adopting a long-term outlook will be making a savvy investment by purchasing in 2019.’

Caroline Takla of prime London buying agency, The Collection, said: ‘The top end London market will continue to be strong in 2019. The view internationally is that Brexit will be cancelled and therefore many buyers have been continuing as though it simply isn’t happening.

‘With the exception of Russian purchasers who have all but vanished from London, the weak pound is providing ample investment opportunities for overseas buyers. Dollar-based buyers in particular are continuing to make the most of opportunities to bag a bargain, whether it be an unmodernised mansion or newly renovated apartment.