Economists forecast property price growth of just 1.5% in UK, fall in London

UK house prices will grow only by 1.5% in 2015 but they are set to fall by 3.6% in London before growing again but slowly over the next five years, according to economists.

The report from the Centre for Economics and Business Research (Cebr) is an upward revision from its previous report in January when it forecast a fall of 0.6% in prices this year.

It said that the impact of December’s stamp duty changes has been felt sooner than expected, with some buyers putting cash saved towards a deposit but while expectations have been revised up it is a more subdued outlook for London.

The property market in the capital continues to show signs of cooling. Average house prices in London are expected to decline by 3.6% over 2015 but the report also points out that they increased by 17.4% in 2104.

Cebr continues to expect London house prices to underperform the rest of the UK this year, following years of over performance. It points out that the strength of sterling against the euro, fears of a mansion tax and hefty new stamp duty rates on high value properties have all hit housing demand from overseas buyers.
In 2015, for the first time since 2009, house price growth will be stronger outside the capital than in London itself. Leading indicators such as fewer new buyer enquiries and properties taking longer to sell already point to falling prices in the capital.
Outside of the capital, the decline in overseas interest in UK property will be much less strongly felt. At the same time, most home buyers have benefited from December’s stamp duty changes as well as an improving labour market which has boosted consumer spending power.
The YouGov/Cebr Household Economic Activity Tracker (HEAT) shows that consumer expectations for property price growth across the UK have been picking up in recent months after declining in October, something that is feeding through into rising consumer confidence in the run-up to the general election.
‘Outside of London, the outlook for house prices this year has improved after a few months when the market appeared to be coming off the boil. December’s stamp duty changes, as well as rising household incomes, are lifting prices in many parts of the UK,’ said Nina Skero, Cebr economist and main author of the report.

‘In London, however, we expect prices to decline by 3.6%, driven by a significant weakening at the prime end of the market. A potential mansion tax, reduced overseas interest and hefty new stamp duty rates have hit demand for high value property,’ he added.