- New Cebr forecasts show UK house prices grew by 8.8% in 2014 but will fall by 0.6% in the year ahead.
- Due to a marked slowdown at the prime end of the market, London house prices will witness the greatest decline of 3.3%.
- Even after May, when the elements of political and taxation uncertainty are less of a factor, Cebr does not expect a strong post-election bounce-back.
New forecasts released by Cebr show that average UK house prices will drop by 0.6% in 2015. This is in sharp contrast to 8.8% growth over 2014.
While strong house price growth in London has recently driven up average UK house prices, in 2015 the capital will witness a price drop greater than anywhere else in the country. In fact, for the first time since 2010, house price growth in the UK will be stronger when London is excluded. Leading indicators such as fewer new buyer enquiries and properties taking longer to sell already point to falling prices.
Price declines reflect a market adjustment following a period of very strong growth, but are also a result of a series of domestic and global developments. Foreign demand for property is expected to decline as London property prices are now above their pre-crisis peaks in US dollar and euro terms. Also, concerns over the mansion tax are partially tarnishing the country’s safe haven status. Finally, slowing economic growth abroad, most notably in Russia, is likely to limit foreign purchases of prime London properties. An increase in housing supply is further expected to place downward pressure on prices in the medium term.
Much of the UK is expected to witness higher transaction numbers as a result of changes to the stamp duty system. Still, this is unlikely to entirely offset other factors weighing down on market conditions.
Finally, interest rate rises from the Bank of England towards the end of the year will also play a role. Although rises are expected to be very gradual, with rates remaining well below their pre-financial crisis levels, buyers are still likely to react by postponing purchases. This too will put downward pressure on house prices.
Nina Skero, Cebr Economist and main author of the report, said: “The new stamp-duty system lowers tax payments for 98% of home buyers and will give a slight boost to the market, but not enough to prevent a price drop.
“The uncertainty surrounding May’s election, proposed changes to property taxation, and reduced foreign demand are already bringing down house prices.
“Subdued price rises or modest declines also reflect a correction in the housing market after a period of very strong price growth.”