Steady price growth of 2.5% forecast for UK mainstream property market in 2018
The mainstream UK property market is likely to see price growth of 2.5% next year but the weaker prime central London market is forecast to be flat in 2018, according to the latest outlook report.
However, zero growth in the prime central London market is the best case scenario and the sector could see prices fall by 5% as both sales and prices have continued to fall at the upper end of the market.
The forecast from agents Strutt & Parker does, however, suggest that looking further ahead, over five years prime central London price growth is set to outpace that of the UK as a whole.
The forecast, compiled with economic forecasters Volterra, sees prices rising by 2.5% in the mainstream UK market in 2019 and then by 4% in 2020, 2021 and 2022, giving a cumulative rise of 18%.
For prime central London the firm give a best and worst case scenario. On the positive side it predicts price growth of 4% in 2019, 5% in 2020, and 6% in 2021 and 2022, totalling five year growth of 23%.
But in the worst case scenario prime central London prices could be flat in 2019, rise by just 1% in 2020 and then by 2% in 2021 and 2022. Adding this on to the fall of 5% in 2018 this means over the five year period prices would be flat.
However, the lettings market in prime central London is forecast to be steady with a 1% rise in 2018, a rise of 1.5% in 2019, a rise of 2% in 2020 and a rise of 2.5% in both 2021 and 2022, totally five year growth of 10%.
The report points out that the first rise in interest rates for a decade is expected to have an impact on mortgages, which will be compounded by a further year of limited wage growth combined with inflation.
‘While political and economic conditions remain uncertain, we have seen slower than expected house price growth. With the current Brexit negotiations underway, we continue to maintain that from 2019 onwards it is extremely difficult to forecast the housing market with any certainly, but we would expect some bounce back and a return to growth once more political stability has returned,’ said Vanessa Hale from the research division at Strutt & Parker.
Guy Robinson, head of residential agency at Strutt & Parker, explained that despite the slowdown in UK house price growth, the residential market remains active, and Strutt & Parker has recorded an 8.3% annual increase in the number of transactions across the country.
‘Over the past quarter we have seen the impact of political and economic uncertainty on house prices spread from prime central London out to the residential market around the M25, although sensible pricing and other adjustments by all parties can help the market in the commuter belt from becoming stagnant,’ he said.
He pointed out that the best performing locations in the UK property market this quarter have been in the South West and the Midlands, which are experiencing growth above the national average. ‘These regions benefit from popular cities and market towns with good housing stock and infrastructure, and there is a healthy number of buyers stepping in to take advantage of good schools and affordability,’ he added.
London, which has traditionally experienced the strongest growth rates in the UK, has been the worst performing region in 2017, with a negative growth rate of 0.6%. Prime central London prices have declined for the third consecutive quarter of 2017 with quarterly decrease of 1%, following a 1.2% decrease in the second quarter.
The report says that this means prices have fallen around 3% so far in 2017 and are down by 5% compared to the same time a year ago. However, it is worth noting that London house prices are still 54.6% above their 2007 peak.
‘Prime central London tends to be ahead of the curve in reacting to the political and economic mood, and it experienced a marked slowdown a year and a half ago. Seller expectations are realigning in most situations, with appropriate asking price adjustments. As we head into 2018, we envisage seeing a more active market with an increase in the number of buyers and sellers alike,’ said Charlie Willis, head of London residential agency at Strutt & Parker.
‘Affordability and value are still important even when the buyer profile in prime central London often consists of cash rich buyers. It is a misconception that cash buyers in prime central London are shielded against changes in interest rates and the wider economy,’ he explained.
‘Many cash buyers still need some form of finance, usually having significant other investments, and will be looking to lenders to finance refurbishment and other improvement works by taking loans out against their property investments,’ he added.