Low growth predicted for UK house prices during 2018

Experts from Nationwide have predicted that house prices will largely remain flat throughout 2018, rising by a marginal 1-1.5% during the next 12 months.

Trends of 2017

Last year, London saw house prices slow significantly, with the growth rate falling for the first time in nine years.

In other regions, averages varied from month to month. For example, in northern England, Scotland and Wales, house prices are now 5% lower than they were 10 years ago.

Robert Gardner, Chief Economist for the Nationwide Building Society, said: Annual house price growth remained in the 2-4% range throughout 2017, in line with our expectations and broadly consistent with the 3-4% annual rate of increase we expect to prevail over the long term, as this is also our estimate for earnings growth over the long run.

Predictions for 2018

For those hoping house prices will rise in 2018, the outlook for growth is not optimistic. The ever-present squeeze on household budgets is predicted to slow down housing market activity, which will, in turn, affect house price growth.

Robert Gardner, again commented: We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth.

Overall, we expect house prices to be broadly flat in 2018, with perhaps a marginal gain of around 1%. Over the longer term, once the economy regains momentum, we would expect house prices to rise broadly in line with earnings (around 3%-4% per annum), though if the rate of house building fails to keep up with population growth, prices may outpace earnings once again, as they have in recent years.

Factors expected to affect house prices in 2018

There are four key areas which could challenge the growth of house prices over the next 12 months:

Politics: We don’t like to bring politics into things, if it can be avoided, but there’s little we can do this year to avoid the effects of Brexit. With the deadline for negotiations approaching in early 2019, it is not yet certain how the housing market will be affected by the EU/Britain divorce settlement.

New policies: The 2017 Autumn Budget brought in some big changes for prospective homeowners. With cuts in Stamp Duty for first time buyers purchasing homes under £300,000 and a reduction in the tax for homes costing up to £500,000, new buyers may be able to afford more expensive homes than they planned.

However, there has been speculation surrounding whether those selling properties will view this as an opportunity to simply push the asking price up.

Rate of building: Throughout the first month in 2018, house prices saw a surprise boost due to a lack of available housing. Robert Gardner commented: The flow of properties coming on to estate agents’ books has been more of a trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices. Though Nationwide do not believe that this will change their prediction of a marginal growth of 1-1.5%. (Source: The Guardian)

Interest rates: In November 2017, the Bank of England (BoE) doubled the base interest rate from 0.25% to 0.5%. This had mixed results, with savers seeing potential growth in their deposits and borrowers facing higher repayments.

The interest rate rise means that most mortgages will now be subject to higher interest rates, so homebuyers taking out a mortgage in 2018 might see higher monthly repayments than those who bought their house before the interest rate rise. That could result in lower buying rates and overall affordability.

What do other experts say?

Halifax predict that house prices will grow during 2018; but only slightly, with some external influences having major effects on the market. Russel Galley, Managing Director of the bank, says: On the flip side UK House Prices in general are likely to be supported, seeing modest growth in 2018, through the combination of a shortage of properties for sale, continued low levels of housebuilding, low unemployment levels and finally good levels of affordability due to the low interest rate environment. Despite the recent rate rise we do not expect this to have an adverse impact on transactions. A further rate rise is not seen as imminent and we may not see one until the latter part of 2018, if at all.

Fionnuala Earley, Hamptons International Residential Research Director has given her take on the 2018 housing market. She predicts house prices will rise by 1%, with rents increasing by double that. She concludes, The 2018 outlook for house prices is fairly benign given the economic conditions. (Source: Zoopla)

We won’t try to guess what is going to happen to the housing market during 2018, but we can help you to plan for whatever the next 12 months has in store. So, if you’re planning to buy a house soon, get in touch.