While Brexit has not yet had a major impact on the UK housing market, a new analysis suggests that the economic outlook remains uncertain and property price growth is likely to be more subdued in 2017.
Both the London and wider UK housing markets outperformed expectations following the referendum in June and after a sharp dip in confidence just after the vote conditions improved into the autumn, according to the analysis report from real estate firm Knight Frank.
It says that on most measures the mainstream UK market continues to perform strongly with annual price growth likely to end this year at 5% and most regional markets have seen positive growth with the exception of Wales.
In 2016 price growth rippled out from London and Knight Frank expects that by the end of the year the East of England and the South East will both see stronger growth than that recorded in Greater London.
However, looking ahead to next year the analysis suggests 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. ‘This slowdown in the capital will likely be experienced across the rest of the country with price growth down notably on 2016 levels,’ said Liam Bailey, Knight Frank global head of research.
He explained that the main drivers for weaker market performance relate to economic uncertainty surrounding the Brexit process, which the firm believes will impact negatively on consumer confidence in the run up to and just after the serving of the formal notice to quit the European Union which the Prime Minister has said will take place by the end of March 2017.
In addition the impact of reforms to the taxation of landlords is expected to result in a reduced demand from property investors which will limit upwards pressure on prices.
‘Looking at the prime London market, we believe that a 7% fall in prices across the western part of central London in 2016 means that we are close to the bottom in terms of price adjustment in this market. Although there could be some further adjustment downwards in prime outer London markets through 2017,’ said Bailey.
He pointed out that it has been a mixed year for landlords in central London. ‘Demand from tenants has been strong, but this has been offset by a strong supply of rental properties. In our view there is a risk of further rental falls next year but not on the scale of the adjustments seen this year,’ he said.
‘The wider UK rental market looks relatively positive with modest rental growth expected. Rents could rise further if landlords begin to sell properties in an effort to offset to the impact of tax rises,’ he added.
In the mainstream housing market Knight Frank predicts that overall price growth will fall from 5% in 2016 to just 1% in 2017, then picking up again with a rise of 2.5% in 2018, 3% in 2019 and 2020 and 4% in 2021.
But there is likely to be regional variations. In London price growth is expected to fall by 1% in 2017 compared to a rise of 7% this year, then pick up to growth of 2% in 2018, 2.5% in 2019, then 3% in 2020 and 5.5% in 2021.
In Scotland the growth of 2% for 2016 is set to fall to just 0.1% next year, then up 2.3% in 2018, 2.7% in 2018, and 2.8% in in 2020 and 2021. But these calculations do not take into account any effect of a possible second referendum on independence.
Wales is likely to see a more subdued market over the next five years. Prices will have fallen by 0.5% in 2016, according to the forecast, then remain flat in 2017 before rising by 2% in 2018, and by 2.5% in 2019 but then fall again with growth slowing to 2% in 2020 and 2021.