- New Cebr forecasts show UK house prices to grow by 7.8% this year but fall by 0.8% in 2015.
- The decline in prices will be led by London. Prices in the capital are expected to fall by 2.6% in 2015 as domestic and overseas demand fall back.
- Leading indicators show new buyer enquiries already declining.
- MMR guidance has led to a weaker outlook for mortgage approval numbers.
New forecasts released by award-winning housing market analysts Cebr – the Centre for Economics and Business Research – show that the UK’s housing market is now at a turning point.
After growing by 7.8% this year, average house prices across the UK will dip by 0.8% in 2015. The reversal of fortunes in the property market will be even more dramatic in London, where the 17.1% growth seen this year will be followed by a 2.6% contraction for next year as a whole. The London housing market will be at its weakest in Q3 2015, when prices will stand 8.5% lower than in Q3 2014.
In the capital, leading indicators already point to price declines, falling new buyer enquiries and properties staying on the market for longer before they sell. Affordability has become such an issue in London that prospective buyers are starting to baulk at high prices.
Compounding this is a decline in overseas demand. London property prices are now above their pre-crisis peaks in US dollar and euro terms – making London housing less attractive for overseas investors.
In addition, UK property is increasingly looking like a less safe investment. Uncertainty over the next election, some uncertainty about UK governance following the fallout from the Scottish independence referendum and the risk of an uncertain relationship with the EU make the UK appear inherently more unstable than in the past, while the proposed mansion tax raises the prospect of expropriation of wealth in the future – something which will deter overseas investment in the UK.
House price growth is expected to slow across the UK next year. The Mortgage Market Review (MMR) guidance, introduced in April, has led to a weaker outlook for mortgage approval growth as eligibility criteria have become tougher. This will curb demand for property in the short term.
Scott Corfe, Head of Macroeconomics at Cebr and main author of the report, says “Tougher mortgage eligibility criteria, high deposit requirements and concerns about future rate rises are starting to take steam out of the UK housing market.
But the risks should not be exaggerated – the price falls forecast for next year will be modest and we shouldn’t be too worried about this – we are not anticipating a crash. The market is adjusting after getting ahead of itself at the start of 2014.”
Douglas McWilliams, Executive Chairman at Cebr, says “the London housing market is being hit by a double whammy of reduced domestic and overseas demand. Sterling appreciation since the start of 2013 means that London property is no longer as attractive an investment as it was a few years ago“
“In addition, fears of a future mansion tax are eroding the UK’s international safe haven status. This will bring down prices at the top end of the capital’s housing market.”