UK govt revises its medium term house price growth forecast downward
The UK government thinks house prices will grow sat a slower rate than previously expected in the medium term, mainly due to changes in lending.
The latest forecasts from the Office for Budget Responsibility (OBR) reveal that overall, house prices are expected to rise by 34.1% by the first quarter of 2021 with the outlook revised from the last guidance which was issued in March.
The OBR cites changes to the regulatory environment as well as changes to lenders’ behaviour brought about by the Mortgage Market Review (MMR) which came into play in April 2014 as reasons for the revision.
As a result, the estimated cumulative level of house price growth by the first quarter of 2020 is 5% lower than it was in the March forecast so the growth prediction is now 34.1% by the first quarter of 2021.
The OBR has also revised its forecasts for Stamp Duty revenue which is now forecast to raise £11.5 billion in 2015/2016, rising to £17.3 billion in 2019/2020 compared with the March forecast of £10.4 billion £18 billion respectively.
So, compared with its March forecast, SDLT receipts are expected to be £1.1 billion higher in 2015/2016 but £0.7 billion lower by 2019/2020.
The OBR said it has changed its short term forecast for stamp duty receipts because residential property transactions were higher than expected at the end of the 2014/2015 financial year, a trend it expects will continue.
In the long term, lower house prices relative to the March forecast reduce receipts by around £1.2 billion in 2019/2020.
Meanwhile, the selling market is expected to be busier this summer. Traditionally the prime months for selling houses were March through to the end of June with a second period of activity in September and October. These two seasons reflected the end of spring and school summer holidays.
However, according to real estate firm Knight Frank there has been a change in recent years, with the market continuing through the usually quieter summer months. The number of properties sold by Knight Frank between June and August 2014 was in fact 25% higher than in 2013.
‘The increase in summer activity is a reflection on a number of factors including the popularity of holidays being taken in the UK and thus being able to see a house more quickly and the rise of the internet allowing holiday makers to browse their tablets and phones whilst relaxing,’ said Rupert Sweeting, head of Knight Frank Country.
‘We are seeing this happen again this year principally as the election made many buyers put their decisions on hold until after the result was known. As a result the market is six to eight weeks late. We already have a high level of house bookings going forward this month and in August,’ he added.