The “double whammy” hitting the UK housing market

It's now generally agreed that the dramatic rise in property prices of the last five years has come to an end the seasonally adjusted Nationwide house price index peaked at the start of the year in nominal terms and has been declining in real terms since last summer. In a reversal from previous trends, London prices have been doing much worse than the rest of the country.

However, there is still disagreement as to whether this represents a "correction", or something more serious along the lines of the 2007-09 collapse or even the implosion of the late 80s and early 90s.

To get a ground-level view of what's going on in the property market, we decided to speak to someone who is directly involved in construction and development: Andy Scott, co-founder of RELCAP. RELCAP is a medium-sized development company with a portfolio of 400 properties. It specialises in turning brownfield sites into homes, though it also runs some mixed-use developments, such as bars and clubs in London's West End. Its residential operations mainly focus on what Scott calls "big-ticket homes" in the Home Counties and commuter-belt towns.

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Brexit and stamp duty combine to dampen demand

Things haven't been going too well for the past two years, says Scott. This is partly because of the uncertainty created by the referendum result, but the rise in stamp duty on second homes to 3% hasn't helped either, dealing a "double-whammy" to demand. Indeed, "interest from potential buyers dried up overnight", says Scott, and there's a definite sense that people "are sitting on their hands". He's still convinced that "'we can get away with a slow and soft bump, rather than a collapse", but he accepts that "a correction still needs to take place in the market".

Scott is also concerned about those who've bought buy-to-let properties. Many of them took advantage of historically low interest rates to take out large loans, hoping that prices would keep on rising leaving them tremendously exposed if rates continue to rise. Already he notes that many those still interested in buying are cash buyers, and 40% of flats in London are now sold to bulk-buyers. Overall, he's very pessimistic about the capital's property market and thinks that, "we may be at a worrying part of the cycle".

Scott is more relaxed about the market outside London. With a bit of luck, he says, "the cycle might have further to run". Houses priced between £300,000-500,000 especially benefit from being in the "sweet spot", attracting young couples who are looking to trade up, as well as older people who are looking to trade down. Though he does admit that while "typically it used to take three months to sell a new property, this has now increased to six months, which eats into our profits".

Another big problem for property developers such as RELCAP is the availability of credit. Lenders "are getting nervous" some are even refusing outright to lend to smaller firms. As a result, RELCAP has been forced to turn to alternative forms of finance, such as P2P and boutique lenders. This is less than ideal, says Scott, because P2P lenders "can be fickle". While the boutiques are more reliable "they charge very high interest rates, sometimes in the double digits". Generally, he finds the credit situation "worrying".

It's not all doom and gloom

Scott is upbeat about the pub and bar sector, however: "discretionary spending on bars seems to be holding up in London". The wave of pub closures over the last ten years, which he blames on the smoking ban and the rise of social media (which reduced the need for face-to-face interaction), is coming to a close; with the weaker pubs driven out of business, the remainder tend to be those that were better run. There has also been a shift in public taste back to pubs from expensive restaurants.

Scott would like to see several things happen:. Firstly, he wants a Brexit deal to be hammered out "to end the uncertainty". He also wants further changes to the planning laws, Indeed, while the new "presumption in favour of development" means, "that planning officers now try and find reasons why development should go ahead", local and parish councils still frequently ignore their advice. He would therefore like to see power re-centralised in the hands of officials, "who can use it to help us build communities where all the generations can live together side by side".