The fall in growth in the rest of the year will largely be due to the rush of buyers looking to beat April’s stamp duty surcharge having pushed prices up in the middle of the year and Brexit uncertainty now impacting the market.
According to the analysis from economic forecaster the Centre of Economics and Business Research (Cebr) London will be most impacted by Brexit uncertainty. Average house price in the capital is expected to increase by 8% in 2016, but fall 5.6% the following year, it predicts.
The report suggest that in the medium and long term housing market performance will heavily depend on the economic and immigration policies agreed during the UK’s exit negotiations with the European Union.
It points out that average prices increased by 8% year on year in the first quarter of the year so a slowdown will materialise in the second half of the year. As a result of Brexit, Cebr has downgraded its short term house price expectations and now expects prices to grow by just 2.2% over 2017 but expects a smaller impact further down the line.
In the medium term Cebr expects house price growth to pick up as exit negotiations with the EU progress and investors and households gain clarity on how post-Brexit UK will look.
This expectation is in line with Cebr’s central view of the upcoming post-Brexit negotiations progressing relatively smoothly with the ultimate outcome seeing the UK maintain a close economic relationship with the rest of the continent, without necessarily agreeing to an unrestricted flow of labour or goods and services.
The report also says that beyond 2020/2021, housing market developments will depend heavily on the immigration and economic policies the UK negotiates with the EU and the rest of the world.
And it explains that although Brexit does have a far reaching impact on housing, it is important to keep in mind that the property market was losing steam even before the referendum. In April, the stamp duty surcharge on second homes was introduced and this is on top of reductions in buy to let tax relief that were announced in the July 2015 Budget.
Furthermore, in London, the prime end of the market was showing cracks well before the referendum vote on June 23rd. Also, some of the global regions that many of London’s non-UK buyers come from such as Russia and the Middle East are experiencing economic turmoil and are not as able to invest.
‘Although Brexit has certainly sent shockwaves Cebr expects the housing market to slow down but not plummet. Years of under building mean that demand would have to fall very dramatically to meet the low level of supply increases,’ said Nina Skero, Cebr senior economist and main author of the report.
‘Keeping in mind that construction companies are very likely to limit their output further in light of Brexit, price pressures will also come from the supply side. Property in London will, however, be more impacted than elsewhere in the country. The capital’s status as a safe haven is under threat, a relatively high share of its residents are non-UK nationals and the sectors facing the greatest uncertainty following Brexit, for example, finance are concentrated in London,’ he pointed out.
‘Therefore, Cebr expects London prices to grow by 6.8% in 2016, but fall 5.6% in 2017 before returning to growth in 2018 and beyond,’ he added.
