National house price growth in the UK is set to come to a halt in 2018 but a lack of supply is likely to prevent outright declines whiles sales soften slightly, according to the latest forecast report.
Northern Ireland, Scotland, Wales and the North West of England should see the strongest growth while London, the South East, East Anglia and the North East likely to be weaker housing markets.
Indeed, a lack of stock means that potential buyers will continue to be faced with a very limited choice and it looks unlikely that this constraint will be alleviated anytime soon, says the 2018 forecast report from the Royal Institution of Chartered Surveyors.
Other hindrances set to continue into next year is the effect of the 2014 stamp duty hikes at the top end of the market which has impeded activity, the 3% surcharge on additional homes which, coupled with the phasing out of mortgage interest relief, has curtailed demand and reduced the number of buy to let purchasers, and political and economic uncertainty related to Brexit.
In addition, the report points out that the first increase in interest rates announced by the Bank of England in November is only likely to add to buyer caution. Although, it adds that with interest rate expectations derived from financial markets not fully pricing in another move until January 2019, the upside for mortgage rates appears minimal.
But one of the biggest factors expected to hit activity in parts of the country is stretched affordability. The report explains that according to the Office for National Statistics (ONS) median house prices across England are now a greater multiple of average earnings at eight times than at any point in history.
RICS predicts that property prices will see no change at the headline level. Currently at a little over 5% the report says this growth will fade further through the first half of 2018 with the feedback from members now pointing to a flat out turn for national prices, on a year on year comparison, by the middle of the year.
For now, the RICS survey data is not signalling an outright decline at a national level, but rather, growth looks likely to come to a halt. It remains to be seen, it adds, whether the moderation in the survey’s price gauge from a net balance of +28% a year ago to zero in November has further to run, or if it will stabilise and begin to rise.
The report explains that factors likely to provide some underpinning for prices going forward include the stamp duty exemptions for first time buyer. The lack of stock on the market is also crucial, meaning even limited demand is being directed at a narrow range of properties.
Furthermore, the labour market should remain solid over the year ahead, while any changes in mortgage rates should be minimal. ‘In other words, conditions do not appear conducive to a rise in mortgage arrears which would normally trigger a correction in prices. With very little forced selling, vendors have the choice of when to list their properties and can avoid doing so in a weakening market,’ the report says.
‘Indeed, changes in fresh demand and supply have become virtually aligned, curbing downward pressure on prices from weakening demand. Given this, even though we envisage activity falling slightly next year, our headline projection is that, come the end of 2018, prices across the UK as a whole will have seen almost no change with a year earlier,’ it points out.
‘Nevertheless, this flat national forecast is brought about by growth in some regions being counterbalanced by price declines in others. It does appear that there is scope for some pullback in prices across a few regions, most notably in London and the South East, particularly over the first half of 2018,’ it adds.
In terms of London, the downbeat survey returns in this area are signalling prices across the inner London boroughs are likely to edge lower in the coming months and RICS says that this negative outlook is no longer confined to central London.
Over the second half of 2017, the weakness in the survey data also spread to the broader South East, providing a strong steer on price trends in the outer London boroughs, the report explains and the price net balance for the South East fell below zero much more recently than that for London, but is also now at a level that would be consistent with modest price declines.
By way of contrast, RICS predicts that prices will continue to drift higher in most other parts of the UK with East Anglia and the North East being exceptions and the strongest gains coming in Northern Ireland, Scotland, Wales and the North West of England.
‘Following a pretty lacklustre finish to 2017, the indications are that momentum across the housing market will be lacking as 2018 gets under way. With several of the forces currently weighing on activity set to persist over the near term, it’s difficult to envisage a material step-up in impetus during the next 12 months,’ said Tarrant Parsons, RICS economist.
‘However, the fundamentals are not much changed from the end of 2017, so levels of activity should soften only marginally when compared to the year just ending. A real lack of stock coming onto the market remains one of the biggest challenges, while affordability constraints are increasingly curbing demand in some parts. Given these dynamics, price growth may fade to produce a virtually flat out turn for 2018,’ he pointed out.
‘That said, despite the recent interest rate hike, mortgage rates are set to remain very favourable, with the prospect of further rises seemingly minimal over the coming year. Alongside this, Government schemes such as Help to Buy should continue to provide some support to sales activity,’ he added.