Brexit vote brings slower house price growth

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Two years of very low house price growth and sales are being predicted as a result of economic uncertainty in the wake of the Brexit vote.

Post-referendum economic uncertainty and weaker consumer sentiment will signal a period of low house price growth and significantly lower transaction levels, says international real estate adviser, Savills, which today issued its five-year forecasts.

Lucian Cook, Savills UK head of residential research, said: “There is no precedent for the current market, and the Brexit vote makes forecasting more challenging than perhaps ever before.

“The effect of Brexit is complicating a natural shift towards the later stages of the housing market cycle, when the strongest growth is seen beyond London and the South-East. What is clear is that the housing market does not like political and economic uncertainty, and this points to lower growth and lower transaction markets across the board.”

Interest rates set to remain low

Negotiations to leave the EU are expected to take two years, during which time buyer sentiment will remain fragile. Interest rates are now forecast to stay low for longer, which will prevent a market correction. At the same time, buyers will be reluctant or unable to stretch their borrowing, leaving little or no capacity for house price growth depending on location.

However, Savills are predicting consumer confidence will improve and create

greater capacity for house price growth from 2019, although this will be constrained by inevitable interest rate rises, particularly in the higher value markets.

As a result, UK mainstream house price growth is forecast to be marginal over the next two years and total just 13 per cent in the next five.

House price growth - the regional picture

Savills say UK average house prices are set to remain flat over the next year to 18 months, growing by just two per cent by the end of 2018, and a total of 13 per cent by the end of 2021.

London will have less capacity for growth than its neighbours, following the inflation-busting house price rises of the post credit crunch year. The more affordable markets of the Midlands, Wales and the North of England will theoretically have more capacity for price growth, but may lack the economic catalyst needed to unlock this potential. The weakest five-year price growth - at nine per cent - will be in the North East and Scotland, where Aberdeen (which showed the strongest post credit crunch growth) will continue to be a drag on the national average as long as oil prices remain low.

The value gap between London and the rest of the UK suggests the commuter belt (+20%) and wider South of England (+17%) will outperform prime outer London. Prime central London will see a bounce in values from 2019 and 21 per cent five year growth, assuming London’s global city status remains relatively unchanged.

Ongoing challenges for first-time buyers

First time buyers are also set to face ongoing challenges in raising a deposit, and numbers are expected to drop by 15 per cent from 325,000 this year to 275,000 in 2018. Schemes such as Help to Buy will remain important if volumes are to recover by 2021.

Mortgaged home owners who are looking to trade up will be constrained by tougher lending criteria, while cash buyer numbers, who currently make up 35 per cent of the market, may be discouraged by increased stamp duty.

Buy to let investors with a mortgage, some 10 per cent of the market and therefore an important source of housing, face tax disincentives and impending mortgage regulation. Their transactions are expected to fall from 120,000 to 90,000 in 2021, and hit a low of 80,000 in 2018. The additional stamp duty for investment and second home buyers will also continue to have an impact.

Demand for rental properties set to rise

However, demand for rental properties looks set to increase as first time and second stepper buyers struggle to access or trade up the market. This means rental growth will be stronger than house price growth both in the short term and over the five-year forecast period. Average rents are forecast to rise by a total of 19 per cent, and 24.5 per cent in London, where access to home ownership is most difficult.