UK property prices set to fall this year but pick up gradually from 2020 onwards
The UK housing market has slowed significantly in recent years, particularly in London and the South East where price growth is predicted to be negative in 2019, according to a new analysis.
But house prices could start to pick up again gradually from 2020 onwards if an orderly Brexit can be delivered, but there is considerable uncertainty around this outlook at present, says the latest economic outlook report from PwC.
It says that the average price of a UK house in 2019 is around £231,000, a slight increase of around 1% over the average 2018 price. Thereafter, the analysis forecasts for the average to rise to around £287,000 in 2025 after a 1% decline in real terms this year.
House price growth across the UK has been softening since the middle of 2016. However, the regional picture is mixed. Prices in London have been falling since the middle of last year, while prices in Scotland, Wales and Northern Ireland are showing some resilience.
The report explains that weak house price growth in England has been driven by falling prices in London and surrounding areas. Annual house price inflation in the capital turned negative in July 2018 and has remained so in every month since then.
It adds that this weaker performance is driven by similar factors as the national picture, but to a greater extent. For example, the uncertainty associated with Brexit is amplified in London due to its close integration with Europe, while the increase in stamp duty on high value and buy-to-let properties in 2016 disproportionately affects London owing to higher prices and its larger rental sector.
Other areas of the UK have fared better. House price growth was strongest in Wales in the year to April 2019, at 6.7%, while the Midlands and North West have regularly been the strongest performers in England, although growth has started to weaken in these regions too in recent months.
The average house price in Scotland is predicted to rise by 14% over the next four years to an average of £170,000 but that is dependent on a no-deal Brexit being avoided. This is likely to be growth of 1.7% in 2019, a rise of 2.4% in 2020 and a further 4.7% through 2021 and 2022.
The report also looks at the private rented sector and the affordability of private rents in different regions and for different occupations. Based on a standard benchmark that affordable rents should be no more than 30% of incomes, it says that, on average across the UK, private rents are currently slightly above this affordability threshold.
Rental affordability varies significantly across regions, however, with median private rents well above 30% of income in London and Southern England, but still some way below this threshold in Northern England and Wales.
The rental affordability challenge is even more pronounced for young people and it estimates that 22 to 29 year olds on average now have to spend over half, some 53%, of their income on private rent in London.
There are also wide regional variations in the cost of private renting and the detailed analysis shows that median private rents in London, the South West, the South East and East Anglia are above a commonly used threshold of 30% of incomes that deems them unaffordable. Key workers such as nurses and teachers in these regions also often face rents above this 30% of income affordability threshold.
It points out that high private rent levels may prevent people who work in key professions from living in or moving to London and Southern England, leading to shortages of nurses, teachers and other key workers, as well as limiting economic and social mobility across the country.