The first forecasts outlining the future of the UK residential market differ in their prediction of house price growth to 2018 by more than 8%, and by more than 13% for central London.
The mixed picture emerged as Knight Frank and CBRE released relatively bullish outlooks for the market, while Countrywide and Cluttons remained more cautious.
CBRE says UK house prices will rise by 3% in 2016, the same as prime central London prices. Knight Frank predicts 3.9% growth for the UK and between 5% and -2% for east and west central London prime markets respectively.
Cluttons, meanwhile, has said that UK-wide prices will increase by 2%, and Countrywide foresees a 2.5% rise. Their central London growth predictions are for -1.5% and -6% respectively.
The economy, stupid
The forecasts vary as a result of differing opinions on a range of factors, of which the most important is the economy and its impact on wages, employment and consumer confidence.
CBRE’s UK outlook says: “Despite some short-term turmoil following the referendum, the UK still has otherwise very stable economic foundations.”
Jennet Siebrits, head of residential research at CBRE, said: “London and the UK are still robust investment regions with a strong and established legal structure, favourable time zone, world-class education system, and a durable, settled, democratic political structure.
“Despite the EU referendum, our forecasts remain unchanged and we expect UK house prices to grow by an average of 3% this year.”
Countrywide, meanwhile, says that most economic forecasts have a negative effect on GDP, which in turn will hit income growth and housing. Meanwhile, the fall in sterling will lead to a rise in inflation, which will hit economic growth and demand for housing.
It said: “We expect the economy to weaken and for this to influence house price growth and transaction levels as consumer confidence, household incomes and the labour market are affected.”
No debt, no problem
Much has also come down to lending and policy. As long as both seem stable, it bodes well for the housing sector.
Knight Frank pointed out that mortgage rates remain near record lows, and the narrative from the Bank of England indicates it is focused on continued, loose monetary policy.
“Unlike the aftermath of the financial crisis, mortgage lenders remain keen to lend, mitigating worries about rising rates in the short-term,” the agent said.
Meanwhile, central government has implied that schemes that support the market, such as Help to Buy, will continue.
Stamp duty vs Brexit
The prime central London market is consistently underperforming in the forecasts, but even here there is difficulty in determining whether the slowdown is a result of the referendum or a general tailing off in the market.
Faisal Durani, head of research at Cluttons, says: “The full implications of Brexit on the housing market are still too early to assess, but the referendum result has accelerated a slowdown that has been under way for more than 12 months.
“The market has been stalled primarily by affordability constraints, stamp duty adjustments that have hampered activity at the top end of the market, and the general lack of appropriate stock to satisfy domestic demand.”
CBRE says that because it has been difficult to determine how much demand was owed to the rush to beat the April stamp duty deadline, it is difficult to establish whether there has been a slowdown caused by purchases being brought forward, or by an underlying slowdown in demand.
Cautious approach
But bullish or bearish, almost all the forecasts retained a note of caution about the outlook for the sector and its vulnerability to further shocks.
Durani says: “The implications of Article 50 being triggered cannot be stressed enough as this may cause any nascent return to growth to unravel, dragging house prices into negative territory, should the UK’s new EU relationship not be seen to be favourable or amicable.”
Countrywide predicts: “There will be downward adjustment to prices as the UK faces uncertain times and a weaker economic outlook.
“Not all that is Brexit related, although this is likely to be a catalyst as buyers and sellers factor weaker conditions into their price negotiations.”
Four views of the UK’s resi market
| Countrywide | 2016 | 2017 | 2018 | 2016-18 |
|---|---|---|---|---|
| UK (avg price change, %) | 2.5 | -1 | 2 | 3.5 |
| Wales | 1 | -0.3 | 1 | 1.8 |
| Scotland | 1.5 | 0 | 2 | 3.5 |
| London | 3.5 | -1.3 | 2 | 4.3 |
| Prime central London | -6 | 0 | 4 | -2.2 |
| Central London | 2 | -1.5 | 1 | 1.5 |
| Cluttons | 2016 | 2017 | 2018 | 2016-18 |
|---|---|---|---|---|
| UK (avg price change, %) | 2 | 1.2 | 1.8 | 5.1 |
| Wales | – | – | – | – |
| Scotland | – | – | – | – |
| London | 1.4 | 2.3 | 2.9 | 6.7 |
| Prime central London | -1.5 | 0.9 | 3.1 | 2.5 |
| Knight Frank | 2016 | 2017 | 2018 | 2016-18 |
|---|---|---|---|---|
| UK (avg price change, %) | 3.9 | 4.1 | 3.5 | 11.9 |
| Wales | 3.5 | 3 | 2.5 | 9.3 |
| Scotland | 1.5 | 2.5 | 2.5 | 6.6 |
| London | 5 | 4.5 | 3 | 13 |
| Prime central London east | 5 | 5 | 4.5 | 15.2 |
| Prime central London west | -2 | 0 | 3 | 0.9 |
| Prime outer London | 4 | 4 | 4 | 12.5 |
| CBRE | 2016 | 2017 | 2018 | 2016-18 |
|---|---|---|---|---|
| UK (avg price change, %) | 3 | 2 | 3 | 8.2 |
| Wales | 4 | 3 | 3 | 10.3 |
| Scotland | 2 | 3 | 3 | 8.2 |
| London | 5 | 2 | 4 | 11.4 |
| Prime central London | 3 | 3 | 5 | 11.4 |
To send feedback, e-mail alex.peace@estategzette.com or tweet @egalexpeace or @estatesgazette
