House price predictions for 2017

The experts give their predictions for the UK housing market in 2017 and look back at events last year.

The housing market saw a buoyant start to 2016, with demand continuing to rise beyond the supply of available properties, and with no signs that the Bank of England would increase the base rate, ensuring that mortgage borrowing rates would remain at record lows, this trend looked set to continue throughout the year.

But following a surge in buy-to-let activity in the first quarter of the year, ahead of an increase in stamp duty for second homes, the market inevitably slowed in April, as the tax changes took a little of the heat out of the investor market.

Marc Langdon, Partner, Bidwells, commented: “The housing market was ‘firing on all cylinders’ with investors and second home owners all seeking to get transactions completed before the Stamp Duty and tax changes came into effect.

“These changes were a well-planned idea to boost revenue from a buoyant UK housing market. All in all, a sound plan many economists thought, as long as nothing unpredicted happened to the UK economy.”

As the impact of the tax changes began to subside, fresh uncertainty started to creep into the UK housing market following the sense of gathering momentum for the ‘Leave’ campaign ahead of June’s European Union referendum.

The looming EU vote caused high levels of uncertainty in the market, as many nervous buyers and sellers adopted a wait and see policy, causing activity levels to slow and property price growth to cool.

“Cameron and Osborne’s gamble didn’t pay off, thus leading to a lost summer and a considerable drop in transactions, particularly in central London and other markets throughout the UK,” Langdon added.

Post-Brexit jitters

The morning after the EU referendum, and the world was left in shock at the news that the British people had made the momentous and unprecedented decision to leave the European Union.

The astonishing outcome from the historic EU vote saw an extraordinary number of external events unfold within hours of the votes being counted: Global markets plunged, David Cameron resigned as prime minister (was this within hours?), and sterling crumbled to a 31-year low against the dollar.

There is nothing that markets dislike more than uncertainty and surprises, and the EU vote unleashed considerable forces of uncertainty.

Unsurprisingly, several reports suggested that agreed property deals were falling through up and down the country within a few weeks of the vote as post-Brexit jitters hit, while buyer demand dropped to an eight-year low, according to the Royal Institution of Chartered Surveyors (RICS).

Greater uncertainty in the wake of the EU referendum also had an adverse impact on household sentiment, with a survey by Knight Frank and IHS Markit in July signalling the greatest month-on-month loss of momentum in property prices for seven-and-a-half years.

Throw into the mix, a new Prime Minister, the election of U.S. President Donald Trump, and fears that Austria would opt for a far right-leaning President, it’s fair to say that 2016 was an eventful year, and yet the housing market remained remarkably resilient.

House prices ended 2016 on a high, with December posting the biggest monthly rise in nine months, as property values increased by 1.7% between November and December to hit an average of £222,484, according to the Halifax House Price Index.

Looking ahead

Despite the robust end to 2016, Martin Ellis, Halifax’s housing economist, warned that a number of pressures would rein in demand for property in 2017.

“Slower economic growth, pressure on employment and a squeeze on spending power, together with affordability constraints, are expected to reduce housing demand during 2017,” he said.

“Overall, annual house price growth nationally is most likely expected to slow to 1% to 4% by the end of 2017.”

Howard Archer, chief UK and European economist at IHS Global Insight, also expects housing market activity and prices to come under pressure this year.

“We believe the fundamentals for house buyers will progressively deteriorate during 2017 with consumers’ purchasing power weakening markedly and the labour market likely softening.

“Increasing economic uncertainty is also likely to weigh down on consumer confidence and willingness to engage in major transactions such as buying a house.”

Will Herrmann, director at West Eleven, a luxury property developer and investment company, agrees that the outlook for the housing market remains weak.

He said: “While 2017 is set to be an uncomfortable year for the property market, I do not believe there are any major indications of a housing crash occurring. While there are a number of significant headwinds in place within the industry to ensure that deals are slow, nothing is big enough to completely pull the rug from under us.

“I do, however, expect 2017 to start much as 2016 is finished: people trying to do business in the aftermath of the EU referendum. I think that the impact of Brexit will continue to be tempered by a stream of just enough bad news that people will hold back from making decisions on big capital outlays.

 

Britain will survive outside the EU

The UK has started New Year with yet more uncertainty, after the government lost its fast-tracked appeal to the Supreme Court, forcing ministers to introduce emergency legislation into parliament to authorise the UK’s departure from the EU. In other words, MPs and peers must give their consent before the government can trigger Article 50 and formally initiate Brexit.

“The biggest talking point in 2017 is the triggering Article 50 to begin the process of Britain’s exit from the EU, and what immediate effect this might have on property prices and the value of sterling,” said Camilla Dell, managing partner at Black Brick.

Despite concerns that a Brexit will have an adverse impact on the housing market, many property experts, such as Trevor Abrahmsohn at Glentree Estates, believe that the UK housing market will do well outside of the EU.

He said: “The UK stock market has never been higher, Britain’s growth is one of the highest in the G8 countries, we are very close to full employment, the lower pound is bringing in foreign investment and although there is higher inflation, we seem to be doing rather well despite the apocalyptic prophecies of the former Prime Minister and Chancellor before the referendum.

“The Governor of the Bank of England, Mark Carney, and the head of the IMF Christine lagarde, among others, have all had to eat their words. They were bullied into supporting the former government’s ‘Remain position’ and how foolish do they look now in the post-Brexit era?”

The difficulty we have when trying to predict the future, is that we do not know what form Brexit will take. Although some market stability has come in the aftermath of Brexit, there are some clear signs that there will be further volatility as the UK’s two-year separation from the EU unfolds, which will have an adverse impact on activity levels in the property market.

But the inherent undersupply of housing in this country, with housebuilders building nowhere near the 300,000 new homes a year that the House of Lords Economic Affairs Committee last year said was needed just to meet existing demand for housing in this country, means that house prices are likely to increase further in the medium to long term, even if there is a dip in the short term.

House prices

Recent forecasts from a number of estate agents share the view that property prices are likely to be flat or barely grow in 2017, although this will inevitably vary by region, with many experts of the opinion that house prices in the north of England will rise this year, in contrast to a potential fall in the south, especially in London.

“London’s golden postcodes are in stalemate and this is unlikely to change in the foreseeable future,” said Louisa Brodie, head of search and acquisitions at Banda Property.

Knight Frank forecast that the slowdown in prices which has been evident in central London over the past 12 months will spread to the wider region, with Greater London prices down marginally in 2017.

Liam Bailey, head of global research at Knight Frank, said: “The main drivers for weaker market performance relate to economic uncertainty surrounding the Brexit process, which we believe will impact negatively on consumer confidence in the run up to and just after the serving of the formal “notice to quit” the EU.

“In addition the impact of reforms to the taxation of landlords will reduce demand from investors which will limit upwards pressure on prices.”

But despite an anticipated slowdown in sales, a familiar mix of increasingly unaffordable prices and a housing shortage could push prices higher in some regions.

 

Regional disparity

While the housing shortage persists, interest rates look set to remain at their record low of 0.25% for the foreseeable future, and so it is not surprising that the general consensus is that property prices will remain steady across much of the UK this year.

A survey of housing analysts, carried out by Reuters, found that house prices are expected to rise by 2% this year and 2.7% in 2018, although this will inevitably vary by region.

“Things are far more difficult to predict than usual because of the high number of upcoming global events,” said Stephanie McMahon, head of research at Strutt & Parker.

Strutt & Parker forecast that over the next five years, Greater London is set to experience the highest level of property price growth (16.5%), followed by the South East (16%), East of England (14.2%) and the South West (10%) – with single digit returns in the other UK regions.

Amid greater political and economic uncertainty following the Brexit vote, coupled with affordability concerns for many homebuyers, particularly first-time purchasers, property transactions could very well fall this year, but property prices should ultimately continue their steady climb, driven by a shortage of supply.