UK house price growth to slow on Brexit as London faces price declines

The Centre for Economic and Business Research (Cebr) has updated its house price forecasts and is now expecting a slowdown in UK house price growth in 2016 and 2017.

While Brexit is a key reason for that new forecast, the group states the additional stamp duty payments private landlords must now pay will also have a significant impact on prices.

The Cebr said it now expects UK house price growth to slow from 6% in 2015 to 5.7% in 2016 and 2.2% in 2017 before recovering some pace in 2018 and beyond – provided the Brexit negotiations go smoothly. London house prices are expected to be hit more severely, however and CEBR economists are forecasting a rise of 6.8% in 2016 followed by a drop of 5.6% in 2017 as investors and business confidence take a breath before the in-depth and likely prolongued Brexit negotiations begin.

“Although Brexit has certainly sent shockwaves Cebr expects the housing market to slow down but not plummet,” said Nina Skero, Cebr Senior Economist and main author of the report. “Years of underbuilding mean that demand would have to fall very dramatically to meet the low level of supply increases.”

The Cebr isn’t the only group that considers the severe lack of homes in the UK and the continued high level of demand to be so imbalanced that it will limit house prices falls. UK bank Coutts are among a number of economists and experts who agree that years of underinvestment in the UK’s housing stock means that while demand may slow, it will remain strong enough to support house prices during the uncertainty of Brexit.

Another detail which is supportive of house price in the UK is the low mortgage interest rates and bank willingness to keep lending since Brexit – a stark reminder that while Brexit is a major event, it’s not the credit crunch. And, banks are much better placed to withstand shocks now than they were eight years ago.

Indeed, while the potential damage Brexit could do to UK house prices may be limited on a nationwide basis, London property is specifically placed to lose the most during the height of uncertainty. London’s safe haven status is currently under threat as there is a chance the UK government’s future negotiations with the European Union don’t achieve the right level of trade freedom and immigration monitoring and limits.

If the UK’s ties with the EU are much less close than they are now, there is a chance that some major businesses will move their headquarters to the continent. That would be devastating for the UK’s economy and make London a less attractive place for investors to park their cash; if London property is no longer highly sought after then its value could fall over the long term.

The Cebr isn’t expecting that scenario however and after a couple of years of uncertainty, the forecaster says successful UK-EU divorce negotiations should end a period of uncertainty, allowing London property prices to recover.

“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,” the Cebr report reads.

Any future clarity on the UK’s new relationship with the EU is something that will surely be welcomed be everyone and not just investors of London property.