Property prices could be flat in the UK next year but could also grow by up to 3% by the end of 2018 depending on economic performance and Brexit, the latest lender forecast suggests.
Trends are expected to be similar to 2017 with a combination of a shortage of properties for sale, continued low levels of house building, low unemployment levels and good levels of affordability due to the low interest rate environment.
The forecast from lender the Halifax says that the recent interest rate rise is not expected to have an adverse impact on sales and a further rate rise is not seen as imminent and indeed may not materialise until the latter part of 2018, if at all.
Overall it is forecasting price growth of 0% to 3% by the end of 2018. ‘The main driver of this forecast is the continuing effects of this year’s squeeze on spending power as inflation has outstripped wage growth and the uncertainty regarding the prospects for the UK economy next year,’ said Russell Galley, Halifax Bank’s managing director.
He pointed out that price growth has slowed from 10% in March 2016 to a recent low of 2.1% in July 2017, although levels have recovered in recent months to around 4%.
‘The imbalance between supply and demand continues. On the demand side, new buyer enquiries have been weakening for much of the year. At a regional level, this measure has deteriorated far more sharply in London, the South East and East Anglia compared to other parts of the UK,’ he explained.
‘On the supply side, new instructions had held broadly stable, however, the latest data shows the supply of homes for sale sharply deteriorating. On this measure, supply has now fallen in 21 consecutive months to November. There is little reason to expect any fundamental shift in the key housing market drivers in the immediate future,’ he added.
The forecast report also suggests that the abolition of stamp duty for most first time buyers could boost that sector of the market but price growth is likely to be weakest in London and the South East of England.
Galley also pointed out that not only has house price growth, but building activity, completed sales and mortgage approvals for house purchase have all remained flat. ‘This is driven by a combination of the continuing uncertainty regarding the future of the UK economy, and the ongoing challenge for prospective buyers to build up the appropriate deposits to support purchases,’ he said.
He pointed out despite unemployment falling to a 42 year low, there has been no accompanying pick-up in wage growth which averaged 2.2% for much of 2017 and as a result, household finances have come under strain with earnings failing to keep pace with consumer price inflation.
‘Even with inflation expected to fall next year, household budgets are likely to remain strained in the absence of accelerating wage growth. Because of the heightened uncertainty and a slowdown in household spending, there is an expectation for slower economic growth in 2018, though unemployment is likely to remain low,’ he added.
Looking at the regional housing markets in more detail, the report says that property price momentum was strongest in 2017 in Northern England but weaker in the South East and London.
At 9.1% in the third quarter of 2017, the North saw the steepest annual rate of house price growth, followed by the East Midlands and the North West. London was the weakest performing English region with an annual rate of 2.6%, down from a recent peak of 21% in the first quarter of 2016. In the South East, for the first time in three and a half years, house prices increased at a softer pace than the UK as a whole.
As a result of the rapid price growth in the capital, house prices in relation to average earnings are still very high in London at 8.8 times annual average earnings they are close to the historical high of nine. Additionally, mortgage affordability in London is worse than its long run average, the only region in the UK where this is so. ‘These affordability issues suggest that price growth will continue to remain low. Outside London, there are few signs of significant stresses and imbalances at present, limiting the risk of a sharp slowdown elsewhere,’ Galley explained.
‘Both demand and supply pressures in the market have altered little during the course of 2017 and this has been the key reason for the lack of direction in either sales or prices at a national level,’ he added.
