By This Is Money Reporter 09:02 BST 31 Dec 2018, updated 09:02 BST 31 Dec 2018
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- House prices in 2019 set to be affected by the outcome of Brexit on March 29
- Concerns about mortgage affordability to remain amid expected rate rises
- Affordability levels remain attractive in many areas outside of southern England
- Average house price rose by £8 a day in 2018, but will this be the same in 2019?
Brexit may dominate the headlines but mortgage rates and wages will play an important part in what happens to house prices next year, say analysts.
House prices remained relatively resilient this year, despite anxiety about Brexit and concerns about affordability.
Exact figures vary across different house price reports but the general picture is of a market where overall rises were muted – at about 1 to 3 per cent. However, some locations, such as the Midlands and northern cities saw strong property inflation, whole London and the South East reported stagnant or falling markets.
Looking at analysts predictions for 2019, the outlook is for more of the same.
Rising interest rates and mortgage affordability
The average British property’s value increased by £2,860 in 2018, according to property website Zoopla, a rise of just 1.02 per cent.
In Scotland, property values rose by 6.43 per cent, while in Wales they climbed 3.98 per cent, but in England gains were a marginal 0.58 per cent.
The property market is expected to follow a similar trend in 2019 – although it could be all change depending on the outcome of Brexit on March 29 and the impact this has on people’s ability to afford to buy a new home.
Halifax forecasts a 2 to 4 per cent increase in house prices for 2019.
Halifax’s Russell Galley said: ‘Aside from the obvious political and economic uncertainty, the biggest issue for the housing market in 2019 will be the degree to which mortgage payment affordability changes.’
He went on to say: ‘Average pay growth is likely to gather pace but, with a further interest rate increase also predicted, house prices are unlikely to be pushed significantly in either direction.’
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Interest rates were increased to 0.75 per cent by the Bank of England at the beginning of August this year. Mortgage rates have since stayed low, however, as banks and building societies battle for customers.
This price war could continue and help to support house prices, or fizzle out with gently rising rates keeping a lid on property inflation. A chaotic Brexit would dent lenders’ confidence and could lead to sharper mortgage rate increases, which would slam the brakes on the property market.
Savills has predicted that house prices in Britain will rise 14.8 per cent from 2019 to 2023, with some significant regional variations. For example, London is only forecast to see a 4.5 per cent rise.
Savills’ Lucian Cook said: ‘Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term.
‘That legacy will limit house price growth, but it should also protect the market from a correction.’
House price inflation in 2018
Nationwide: 1.9 per cent – year to November 2018
Halifax: 0.3 per cent – year to November 2018
ONS: 2.7 per cent – year to October 2018
Hometrack UK cities: 2.6 per cent – year to November 2018
Rightmove asking prices: 0.7 per cent – year to December 2018
Part of the affordability issue in the long-term is how the younger generation can afford to get onto the property ladder. If this first rung of the ladder disappears, it will have a ripple effect throughout the whole of the housing market.
Mortgages are cheap, but raising a deposit is the tough task for potential homeowners. Many first-time buyers have been propped up by the Bank of Mum and Dad, particularly with deposits, which have typically reached £82,000 in London – a level beyond most families.
High prices stretching affordability against wages are also preventing families from moving up the housing ladder, as they must jump increasingly large gaps to buy a bigger home.
Rightmove thinks average prices in London will fall by around 1 per cent next year, against a 2.4 per cent dip this year.
Nationally, average asking prices are likely to remain flat next year, Rightmove said.
What’s happening to house prices around the country?
There are major regional variations in house price growth around the country, with London and the South East’s previously strong performance replaced by weakness, while the Midlands and northern cities see rises.
London saw property values drop 1.67 per cent to an average of £653,587 this year, according to Zoopla.
Meanwhile, the East of England saw a 0.5 per cent fall to £357,952, but the South East and South West both saw 0.38 per cent rises to £409,923 and £307,693, respectively.
The best performing English region was the East Midlands, where prices rose by 2.91 per cent to an average of £220,746.
Richard Donnell, of Zoopla, said: ‘The slower growth is down to the value of housing falling in London and the East of England while values have increased across the rest of the country.
‘Values in London have grown significantly since 2010 but multiple tax changes and affordability pressures are resulting in values falling back.’
He added: ‘Affordability levels remain attractive in many areas outside of southern England, and on the back of rising employment and low mortgage rates we see values outperforming the rest of the country, a trend we expect to continue into 2019.’
The latest Hometrack cities report showed annual house price inflation of 2.6 per cent across those surveyed.
Hometrack said the trend is set to continue, forecasting average major city house price inflation will ease to 2 per cent in 2019, with future price rises or falls depending mostly on affordability and Brexit.
In London, house prices are forecast to fall by 2 per cent next year, with some high value areas in for even bigger price falls.
What about Brexit?
As for Brexit, there could be positive news if a deal is struck, according to RICS economist Tarrant Parsons.
He said: ‘Demand has tailed off over recent months, with Brexit uncertainty causing greater hesitancy as the withdrawal deadline draws closer.
That said, the current political environment is far from the only obstacle hindering activity with a shortage of stock continuing to present buyers with limited choice, while stretched affordability is pricing many people out.
‘For the year ahead, this mixture of headwinds is unlikely to dissipate, meaning sales volumes may edge a little lower.
‘On the back of this, house price growth at a UK level seems set to lose further momentum, although the lack of supply and a still solid labour market backdrop will likely prevent negative trends.
‘It’s not all bad news for the outlook, however, as sentiment could be lifted if a deal were to be reached on the withdrawal agreement before too long.
However, buying agent Henry Pryor was less optimistic about the impact of a deal – and indeed, house price predictions themselves.
He explained how John Galbraith had suggested that the only function of economic forecasting is to make astrology look respectable.
He said: ‘Most people you ask about property will try and give you an answer but the most honest will say they don’t know. Once we get past March we may have had a hard Brexit or it may have been soft, but we then face two years of the implementation of transition phase which itself could be extended by another year or more.
There are only two types of ‘expert’ when it comes to predicting house prices – those who don’t know and those who don’t know they don’t know Henry Pryor, buying agent
‘At the end of that, assuming Mrs May has survived that long there will be a General Election, one party wanting confirmation of whatever agreement they have got, the other begging for your vote to reflect that they could have done better.
‘All the while people will die, they will split up and divorce and they will run up debts all meaning that homes will be sold and at prices that buyers are prepared to pay.’
He concluded: ‘There are only two types of ‘expert’ when it comes to predicting house prices – those who don’t know and those who don’t know they don’t know.
‘If you are lucky enough to be able to buy a roof to put over your head then if you can afford it and think you are likely to be able to continue to afford it then don’t put your life on hold, go ahead. In years to come it will still be worth one house.’
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