UK house price growth seen moving more in line with wage growth in 2016

After rising at an above expected 8% in the first 11 months of 2015,

UK mortgage lender Halifax’s research team and number crunchers estimate that house price growth in the UK will slow to an average rate of between 4-6% in 2016.

Few, if any significant changes are expected in the fundamentals of UK’s housing landscape, meaning house prices will remain supported and therefore rise still further next year. However, with affordability being stretched and the earnings to house price ratio close to the all-time high of 2007 – according to Halifax research - the pace at which they will rise is likely to be limited, hence the lower growth forecast from the UK-based lender.

“On average, UK house prices look expensive compared to incomes but valuations are supported by the low levels of property for sale, low levels of housebuilding, and exceptionally low interest rates,” Halifax housing economist Martin Ellis said in the press release.

“Nonetheless, with house prices continuing to increase more quickly than average earnings, it is increasingly difficult to get on the housing ladder. This ongoing development, combined with the growing prospect of an interest rate rise, should start to put the brakes on house price growth during the course of 2016,” Mr. Ellis added.

That forecast is in line with an estimate from IHS Global Insight economists for house prices to rise 6-7% next year, and based on many of the same assumptions.

It’s likely that of all the points mentioned and considered by Halifax researchers and other economists, a potential rise in interest rates - and subsequently mortgage interest rates thereafter - is the key driver for the expected slowdown in house price growth next year.

The Bank of England has stressed that while rates will inevitably begin to rise at some point, they will only do gradually in order to maintain a growing economy and to keep any financial pain for British consumers and home-owners from higher interest rates to a minimum.

House prices are a topic that people the world over love to discuss. Rising house prices are great for owners, particularly investors with few emotional ties to a home, and rather a healthy attitude to buying, selling and renting. But for those who aspire to join the housing ladder, or to move up to the next rung they aren’t so welcome. Indeed, those who are working and saving hard to get own their first piece of real estate will likely be disappointed if UK house prices achieve Halifax’s forecast, despite it falling short of the average house price growth for 2015.

While this latest forecast does keep house price growth above the average rate at which earnings are increasing, if the forecast is borne out then the difference between the two will be the smallest since 2012. If earnings growth remain around current levels then they should be in the region of 3% over the course of 2016 – around half of Halifax’s top estimate for house price growth. In 2014 while workers in the UK saw their earnings rise by an average of around 1%, house prices, according to Halifax, grew 7.8% and it was a similar picture in 2013.