Traditionally prices fall off in the run up to the festive season but the data from Rightmove shows that asking prices fell 1.1% in December and it is forecasting price growth of 6% for 2016.
It says that increasingly stretched affordability and extra stamp duty on the buy to let sector will be outweighed by stark imbalance between supply and demand. Indeed, buyer enquiries to agents since the beginning of October this year are up 37% but the number of properties coming to market was down 5% compared to the same period in 2014.
Looking ahead demand is expected to increase further in more affordable cities such as Leeds, Edinburgh, Cardiff and Manchester as highly skilled workers may choose to leave London for buoyant city regions.
The lower than expected fall in prices mean that the annual increase is almost £20,000 or 7.4%, taking the average asking price to £289,452.
‘Whilst a fall is the norm at this time of year, this is December’s best post financial crash performance, signalling another round of price rises in 2016. Despite the shortage of suitable stock in many parts of the market, demand for housing is on the up,’ said Miles Shipside, Rightmove director and housing market analyst.
‘Although the average price of property coming to market is already up by a hefty 7.4% compared to a year ago, Rightmove forecasts that prices will reach and breach new records next year,’ he added.
He explained that whilst initiatives are in place to encourage developers to build more new homes to supplement the supply of existing ones coming to market, the lead times are long and developers face capacity constraints.
‘In the meantime strong demand is being further fuelled by the additional momentum and aspiration for home-ownership that schemes such as Help to Buy create. We therefore predict that the average asking price will be another £17,000 higher by the end of 2016,’ said shipside.
An analysis of Rightmove data by Dr Alasdair Rae, of the University of Sheffield, suggests that there could be an exodus of highly skilled workers leaving London for more affordable yet vibrant cities such as Leeds, Edinburgh, Cardiff and Manchester.
But this ripple effect won't reach all towns and cities and continued stagnation or price falls are likely in less sought after areas in the north and west of the country, especially if buy to let investor activity tails off.
Rae suggests that as choosier buyers demand easier access to amenities to satisfy convenience and lifestyle demands, expect to see increased price divergence between the more buoyant large urban markets and smaller urban areas that can’t offer the same range of facilities.
‘2016 may be the year when many young urban professionals finally give up on the London market and consider long term career moves to the UK's large, buoyant city regions, such as Manchester, Leeds, Cardiff and Edinburgh. They are already very popular and pricey because of what they offer, but may seem cheap to London émigrés priced out of the capital,’ Rae added.
Shipside also pointed out that the extra tax for second homes and buy to let landlords will have an impact on the property market in the coming months. ‘Those looking to expand their property portfolios will be trying hard to find suitable properties to buy and then complete the purchase before the April deadline. Those selling for the first time are likely owners of properties suitable for renting out, so they may be best advised to take advantage of any surge in investor activity and market as soon as possible,’ he said.
‘Given that the legal process could take six weeks or so once a buyer is found, they only have between now and the middle of February to take advantage of this artificially induced boost to buyer demand,’ he added.
Financially stretched landlords may also consider early action and look to sell now. While rents are forecast to rise in popular locations to improve their returns, some of the hoped-for increase in capital values may be dented in this sector once the stamp duty changes have gone through.
‘Highly geared landlords who are worried about the upcoming changes to mortgage interest tax relief should consider whether this is an opportune time to exit the market. Again they need to act quickly as buy to let investors looking to purchase will want to complete before the April deadline,’ Shipside explained.
He also pointed out that first time buyers may feel the increase in tax levied against buy to let investors in this sector will help them to secure a better deal if they delay agreeing to buy until it is too late to complete before the April deadline.
‘If a buy to let investor wants to buy the same property as a first time buyer, their purchase costs are going to be 3% higher if they do so post-April. That may mean their returns will not stack up to make it attractive, and they will potentially be at a disadvantage compared to would be owner-occupiers looking to get onto the property ladder,’ said Shipside.
‘Prices may therefore have a period in the relative doldrums in this lower priced sector, until the dust has settled. However, demand among fellow first time buyers remains strong so waiting for prices to fall could be just wishful thinking. A lot depends on the dynamics of your local property market so doing your local research is very important as always,’ he added.
