LONDON: UK house prices will continue edging upwards across 2017 – but the rate of growth will slow as households see their spending power squeezed, according to a new forecast. Halifax said in March 2016 that UK house prices were increasing at an annual rate of 10% – but the pace of growth has been a downward trend since the spring. By the end of 2017, Halifax expects annual house price growth across the UK to be running between 1% and 4%. It said the relatively wide range for its forecast “reflects the higher than normal degree of uncertainty regarding the prospects for the UK economy next year”. Halifax said it is “most likely” that the economy will soften over 2017 and lower levels of house sales could take place as more people respond to weaker economic conditions and a deterioration in housing affordability by not buying or moving home. Activity in the buy-to-let sector is also expected to cool further in 2017 as tax changes eat into landlords’ profits.
House price growth in London will slow more sharply than elsewhere, as affordability there is already particularly stretched, according to the predictions. A home in London is already typically worth nine times annual average earnings and price momentum has already flattened out in the capital’s most expensive areas this year, Halifax said. “There is a risk of some price falls in parts of London, particularly in the most expensive central locations, in 2017. The recent fall in the value of the pound could, however, provide a renewed boost to the top end of the central London market by making it cheaper for overseas buyers,” Halifax stated. But, on the other hand, an ongoing shortage of properties for sale and low interest rates keeping mortgages relatively cheap will help to support house prices generally across the UK, the report said. “The housing market is critically dependent on how the wider economy evolves. We consider it most likely that that the UK economy will soften over the course of 2017,” Halifax’s housing economist Martin Ellis said.
“This is most likely to result from the weakening of sterling pushing up import costs and dragging on purchasing power, both for consumers and as a determinant of business investment spending,” he said. “Slower economic growth in 2017 is likely to result in pressure on employment with a risk of a rise in unemployment. This deterioration in the labour market, together with an expected squeeze on households’ spending power – as inflation picks up and outpaces earnings growth later in the year – is likely to curb housing demand,” he added. Halifax’s prediction corresponds with several other forecasts, which point to UK house prices continuing to push up in 2017, but at a slower rate than that seen in 2016. The Royal Institution of Chartered Surveyors has said it expects property values to push up by around 3% over the course of 2017, while Nationwide Building Society predicts house price growth of around 2% over 2017.
