• Price growth will half in the rest of 2016 as the rush of buyers looking to beat April’s stamp duty surcharge abates and Brexit uncertainty takes hold.
• London will be most impacted by Brexit uncertainty. Average house price in the capital is expected to increase by 6.8% in 2016, but fall 5.6% the following year.
• In the medium and long term, housing market performance will heavily depend on the economic and immigration policies agreed during the UK’s exit negotiations with the EU.

 

New predictions from leading economic forecaster Cebr – the Centre for Economics and Business Research – show that, despite post-Brexit tremors, house prices are set to increase by 5.7% over 2016 as a whole.

 

However, given that the average price increased by 8.0% year-on-year in Q1, a slowdown will materialise in the second half of the year.

 

The main reasons behind slower growth are the uncertainty following the UK’s vote to leave the European Union and the introduction of a stamp duty surcharge on second properties.

 

As a result of Brexit, Cebr has downgraded its short-term house price expectations – we now expect prices to grow by just 2.2% over 2017 – but expects a smaller impact further down the line.

 

In the medium term we expect house price growth to pick up as exit negotiations with the EU progress and investors and households gain clarity on how post-Brexit UK will look.

 

This expectation is in line with Cebr’s central view of the upcoming post-Brexit negotiations progressing relatively smoothly with the ultimate outcome seeing the UK maintain a close economic relationship with the rest of the continent, without necessarily agreeing to an unrestricted flow of labour or goods and services.

 

Beyond 2020/21, housing market developments will depend heavily on the immigration and economic policies the UK negotiates with the EU and the rest of the world.

 

Although Brexit does have a far-reaching impact on housing, it is important to keep in mind that the property market was losing steam even before the referendum. In April, a stamp duty surcharge on second homes was introduced. This comes on top of reductions in Buy-to-Let tax relief that were announced in the July 2015 Budget.

 

Furthermore, in London, the prime end of the market was showing cracks well before the vote on June 23rd.

 

Some of the global regions that many of London’s non-UK buyers come from such as Russia and the Middle East are experiencing economic turmoil and are not as able to invest.

 

Nina Skero, Cebr Senior Economist and main author of the report, said: “Although Brexit has certainly sent shockwaves Cebr expects the housing market to slow down but not plummet.

 

“Years of underbuilding mean that demand would have to fall very dramatically to meet the low level of supply increases.

 

“Keeping in mind that construction companies are very likely to limit their output further in light of Brexit, price pressures will also come from the supply side.

 

“Property in London will, however, be more impacted than elsewhere in the country. The capital’s status as a safe haven is under threat, a relatively high share of its residents are non-UK nationals and the sectors facing the greatest uncertainty following Brexit e.g. finance are concentrated in London.

 

“Therefore, Cebr expects London prices to grow by 6.8% in 2016, but fall 5.6% in 2017 before returning to growth in 2018 and beyond”.

 

Figure 1: Average UK house price – annual % change

Source: Land Registry, Cebr analysis

Figure 2: Average London house price – annual % change

Source: Land Registry, Cebr analysis

 

Table 1: Average UK house price – £ and annual % change

Source: ONS, Cebr analysis