Cash Sales Lose Traction in UK Housing Market
For quite some time, the United Kingdom’s housing market has been dominated by cash sales. However, in Q3 2016 the number of cash sales has decreased year-on-year to just 92,845. This research was compiled by UK brokerage firm, Hamptons International. The 5% decline in the number of cash sales in the UK is significant, and it is directly attributable to the increasing cost of houses in the UK. This effectively means that fewer people can pay cash for their properties, and this is evident in the number of bank loan applications that are being received. Areas hit hardest by declines in cash sales include the East, the Southeast and the West Midlands. The declines have been evident since Q3 2015. A sharp drop was recorded in the City of London, where cash purchases declined to 7,684, down 9%. This represents a total market share of 19%. Buyers are now moving outside of London for cash purchases.
Investors Concerned That the City of London Represents Low Capital Growth Prospects
The imminent and ever present threat of a Brexit is weighing heavily on the minds of investors, particularly in the City of London. As the global epicenter for currency trading, and the hub of all European economic activity, any change to the status quo will adversely affect real estate. As such, investors at home and from abroad are looking to expand their portfolios to more affordable areas of the country where growth prospects are greater. Cities like Nottingham and Newcastle have seen cash sale increases of 2% and 14% respectively.
These trends are likely to continue throughout 2017. Besides for declining cash purchases, there is also declining buyer sentiment for the UK overall. Throughout 2016, cash transactions declined by 8% to 22,800 during Q3 2016. The main driver of lower house purchases is uncertainty about the future of the housing market. The UK housing market is driven largely by investor sentiment, with a full 25% + of cash buyers focused solely on commercial returns on their investments.
Predictions for the UK Housing Market in 2017
As it stands, the outlook for 2017 is tepid. This is due in no small part to the Brexit, and slowing economic growth in the United Kingdom. Despite the resilience of the housing market since 23 June 2016, the number of transactions has declined. Housing demand remains well above the supply level, and this is helping to keep the market active. While demand exceeds supply, prices will continue rising. The rate of increase is slowing however. This is evident in the 4% – 8% declines, according to major indices. The deceleration in housing demand will continue owing to stamp duty hikes and the volatility surrounding the Brexit issue. Price Waterhouse Coopers is anticipating a positive housing demand increase of between 2% – 5% in 2017, while Rightmove.co.uk expect an average increase of 2% through 2017. On the flip side, Liberum is expecting a decline of 2.5% while City AM expects a 2% drop in 2017. It is clear that London is going to be hardest hit by the downturn, but peripheral areas will certainly pick up the slack.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.