London house prices set to be muted over next few years, says poll
The days of London house price rises hugely outpacing inflation in the UK is unlikely in the short or medium terms as Brexit uncertainty weights on the housing market, according to a new poll.
Property values in the capital, long a haven for foreign investors, more than tripled in the last 20 years, but demand and turnover have crumbled since the June 2016 vote to leave the European Union and property taxes were raised, the latest Reuters poll says.
It suggests that the economists and analysts responding to the poll believe that prices will fall in London around 1.7% this year and another 0.3% in 2019. But it also warns that borrowing is likely to get more expensive with interest rates rising to 1.25% by early 2020.
Asked if there would be a return to strong turnover and above inflation house price growth in London and the South East if a Brexit deal was struck, 14 of 17 respondents said no. Two said it would happen regardless and one said it depended on the deal.
But Brexit is not the only factor holding back prices, a sharp increase in the property tax, stamp duty, paid when buying a house, has particularly affected London where houses are much more expensive than the rest of the country.
‘The high rates of SDLT will continue to stifle transaction volumes, especially in expensive price areas like London and the South East,’ said Ray Boulger, a senior manager at mortgage broker John Charcol.
After next year’s modest dip London prices are predicted to rise 1.5% in 2020, the poll found. A separate Reuters survey said overall inflation would be 2% in that year.
When asked about the probability of a significant correction in London’s housing market by the end of 2019, the median forecast was only 20%, significantly down from the 29% given in August.
Reuters suggests that may be partly explained by the view that prices are already falling.
But not everyone was gloomy about the capital’s prospects.
‘London demand is starting to poke its head above the stamp duty laden parapet again. History tells us that you can’t subdue London long term and therefore it’s clear that the current downturn in the capital’s volumes and values is temporary,’ said Russell Quirk, chief executive of online estate agent eMoov.
Nationally, house prices are forecast to rise 2% this year, 1.8% next year and 2% in 2020, the poll found but it adds that such moderate gains are below expectations for wage increases and will likely cheer first time buyers who are struggling to get on the property ladder.
When asked to rate the level of London house prices on a scale of one to 10, where one is extremely cheap and 10 extremely expensive, the median response was eight. Nationally they were rated seven, where it has been for a couple of years.
While borrowing costs are currently low, the Bank of England is forecast to raise rates again after Brexit. But the new level of Bank Rate will still be historically low at 1% and it is not expected to rise to 1.25% until early 2020.