New Territory

Deep breath, everyone. We made it. A bit shell shocked, perhaps, but we made it. 2016 is over. Wherever your politics lie, it is undeniable that the past 12-months have been some of the most turbulent in recent memory.

From the UK voting to leave the European Union, to the election of Donald Trump as the 45th President of the United States of America, it has been a year of major shifts in political and societal landscapes. And that’s before taking into account wider global events such as the war in Syria, earthquakes, extreme weather and countless other startling headlines.

But to focus on the referendum here in the UK, and the election in the US, both events have left the two respective countries in something of a state of limbo. Trump will only officially take office this January, and the UK and Prime Minister Theresa May has set a date of March to officially leave the European Community. However, the miles and miles of governmental red tape have not stopped those in the private sectors from taking action.

Just days after the results of the EU referendum and there was loud chatter from the city about major banks relocating to mainland Europe. In fact, the referendum triggered something of a bidding war amongst Europe’s other financial hubs, as cities including Paris, Frankfurt and Madrid launched glossy campaigns aimed at luring large financial institutions – and their thousands of highly skilled and highly paid workers – to shut up shop in the Docklands and Square Mile and set up shop elsewhere.

Naturally, the government made swift moves to assure numerous businesses that staying in the UK would be the most beneficial answer, with a prime example being negotiations between the government and Nissan, regarding the Japanese auto makers manufacturing plant in Sunderland.

But how has the referendum affected the public? Well the pound fell drastically in the immediate aftermath of the vote, sending shockwaves across the world and affecting everything from house prices, to holidays and onto the cost of Marmite. The countless unanswered questions around Brexit and the US election means the pound has been fluctuating dramatically for the best part of six-months.

In October the pound hit a 31-year low against the dollar, putting an end to Christmas shopping trips to New York and cheap Apple laptops for the moment. And then there were reports trumpeting record amounts of tourist spending, with sales to foreign tourists outside of the EU in London rising to 38% in August and 31% in September, when compared to the previous year. London Mayor, Sadiq Khan told the Evening Standard that the data “clearly shows London is open to visitors from around the world and offers them great value for money. Tourism is crucial for our economy and we welcome anyone who wants to come and enjoy what London has to offer.”

But what of the housing market in the UK, and more specifically London. Well, like many other industries, it has been a hugely tumultuous year with plenty of literal and figurative ups and downs. In the days, weeks and months following the referendum, there were headlines about people selling properties below asking prices in order to achieve a quick sale and avoid losing even more money should the bottom fall out of the housing market. These were largely exaggerated, and the reality is that there certainly were fluctuations in the market, but some have been blown out of proportion.

In September, Robert Gardner, Nationwide’s Chief Economist said in the building societies’ latest house price index, “The pace of annual house price growth slowed to 5.3% in September, from 5.6% in August, though it remained within the narrow range of 3% to 6% that has prevailed since early 2015. The relative stability in the rate of house price growth suggests that the softening in housing demand evident in recent months has been broadly matched on the supply side of the market. Survey data indicates that, while new buyer enquiries have remained fairly subdued, the number of homes on the market has remained close to all-time lows, in part due to low rates of construction activity.”

In fact, contrary to some of the more hysterical headlines and pub conversations, the UK and London property markets are, relatively, stable. The Office of National Statistics reported in mid-November that the average house price in the UK actually rose by 7.7% to £218,000. However, the Evening Standard reported that – likely due to uncertainty on the effects of Brexit and people choosing to wait and see what happens – house sales have continued to fall, with sales in Q4 falling short of figures from 2014, 2015 and the beginning of the year. Richard Snook, senior economist at Price Waterhouse Cooper told the Standard in November, “We now have three months of post-Brexit official housing figures, which show price growth remaining robust, but fewer properties changing hands.”

In London, which always has and always will move to its own rhythm, house prices broadly rose by 10.9 per cent in the 12 months to September to £487,000 - more than double the national average. But looking more closely at specific areas, the highest rises are in the satellite boroughs which are more affordable, such as Newham which saw property prices rise by 20% making the average house price £371,000, compared to Camden and Westminster, which actually saw property prices fall 2.4% and 1.1% respectively, giving average prices of £813,000 and £961,000. Interestingly, a recent report stated that the type of London property that has seen the highest price has been the semi-detached house type, which has seen a 41% increase in price over the past five years.

Regarding mortgages, the Council of Mortgage Lenders said in November that they are more affordable than ever, with figures from September showing the average homeowner, excluding first-time buyers, spent 17.7 per cent of their monthly income on mortgage repayments, down from 23.7 per cent eight years ago.

The Year Ahead
With so many potentially world-changing plates in the air and no clear indication of what the results of Brexit will be in the long-term, it’s difficult to say what will and won’t happen for sure in the property market. However, recent data lets us make some educated inferences.

The Telegraph wrote in mid-November that, “the Chancellor, the governor of the Bank of England, and ratings agencies Fitch and Moody’s, have all warned that house prices could fall substantially, by anywhere from 10- 25pc by 2018. The Treasury said that the average house in London will be £62,000 cheaper in two years after a vote for Brexit.” The reason for this potential fall in prices being due to a failure in the economy which may make it harder for some people to find a mortgage. Conversely, this would theoretically make it easier for first-time buyers to get on the property ladder.

But at the top end of the market, new immigration laws could make it more difficult, or simply less appealing for high-earning foreign nationals to come to London, and others may have to leave. However, the election of President Trump has ruffled more than a few feathers in America, leading to some US investors turning their eyes to London property as a secure place to invest their money. And Bloomberg Business recently reported in November that Chinese businesses were on track to invest £4billion in London property, at the time of writing, beating the 2015 record by a third.

Major investment is also underway London’s Royal Albert Docks, meaning that London’s place at the centre of the financial world is far from over, despite the abundance of question marks.