Brexit to end London house price boom

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UK inflation will outstrip gains in house prices this year and next, particularly in the capital, as uncertainty over Brexit and weak consumer spending power hits demand, a Reuters poll found on Friday.

According to the latest quarterly Reuters poll of 33 housing market specialists, taken in the past week, property prices will rise 2.0 per cent this year, much slower than the predicted 2.5 per cent rise in general costs in the economy.

In London – long the hotbed for foreign investors behind a decade of skyrocketing prices – the difference will be even starker: the average price is expected to fall 0.5 per cent this year.

Next year, house prices will rise 0.9 per cent in London and 2.0 nationally, still both below the 2.1 per cent expected inflation rate. In 2020, London prices will increase 2.0 per cent and by 2.3 per cent nationally.

“A significant effect of Brexit is subdued investment confidence,” said Rod Lockhart at online mortgage lender LendInvest.

“Would-be sellers are holding onto assets for longer and buyers are being a little more diligent before committing to significant expenditures, all this against a backdrop of inflation-surpassing wage growth.”

Most respondents in the poll said the Brexit vote had been negative for both turnover and prices in London but were split over whether it had been negative or had no impact nationally.

Sterling is over 6 per cent weaker than before the June 2016 vote to leave the EU, something that should make properties more attractive to foreign investors, who can take advantage of cheaper prices.

But uncertainty over how Brexit divorce talks will pan out has deterred overseas buyers.

“Foreigners get more pounds in their pockets, but the nation and its capital has lost some of its allure,” said Tony Williams at property consultancy Building Value.

With only just over a year to go before Britain is due to leave the EU there is still little clarity on what restrictions there will be on the movement of both goods and people.

Britain’s biggest housebuilder, Barratt, is considering moving production of blocks used in construction from Germany to Britain, it said on Wednesday, an example of steps some businesses are taking to mitigate any Brexit risks.

Generally, housebuilders have benefited from years of rising house prices and government incentive schemes. Bellway said earlier this month it expected a rise of over 14 per cent in housing revenue in the first half as it sold more homes at higher prices.

Negative effects have also come from government efforts to restrain the buy-to-let market and expected interest rate rises from the Bank of England, both likely to keep prices in check and dampen turnover.

Eleven of 18 specialists who answered an extra question said turnover in London’s housing market would be lower this year than in 2017. Seven said it would be the same and none said higher.

“Given stretched income/price levels and lack of supply in London especially – plus macroprudential attempts to rein in buy-to-let – it is difficult to see turnover doing anything other than fall,” said Marcus Dewsnap at research firm Informa Global Markets.

Nationally, turnover would stay the same this year, 16 of 27 respondents said. Ten said it would fall and one said it would rise.

When asked to rate house prices, on a scale of 1 to 10 where one is extremely cheap and 10 extremely expensive, respondents gave a median of nine for London and seven nationally.

“Quite simply, with loan-to-income ratios for first time buyers sitting at around four times, average salaries of £33,000, and your average flat in London costing over £500,000, it’s extremely difficult to see how London can be viewed as anything but very expensive,” LendInvest’s Lockhart said.

Reuters