House price rises of up to 8% in some parts of the UK and an increase in the number of homes sold are on the cards in 2016, property experts have forecast. This is down on the 10% increase seen this year, and there are a number of factors that could have a significant impact on the market’s trajectory over the year and beyond.
Interest rates are one of the biggest unknowns. The Bank of England’s governor, Mark Carney, has made much of forward guidance since starting his tenure in 2013, but the timing of the UK’s first rate rise since the financial crash is still unclear. The main forecasters are factoring small rises into their predictions. At the Royal Institution of Chartered Surveyors (Rics) where a 6% increase in prices has been predicted, its chief economist, Simon Rubinsohn, said he had worked on the basis of a 0.25 percentage point rise. “If the US rate rises again we might start to see mortgage rates rise,” he said. “I would imagine that the best value mortgage rates have been around already.”
The property website Rightmove, however, has not factored any rate rise in to its forecasts. The site is predicting an 6% increase in asking prices next year, adding £17,000 to the current average of £269,477. Its housing analyst Sam Mitchell said: “I don’t expect a rate rise until the very end of next year, or maybe even the start of the year after.”
Lucian Cook, the head of UK residential research at Savills, said a rate rise when it comes is likely to put a lid on price growth in the Midlands and the north of England. “I wouldn’t expect dramatic house price growth in the Midlands and north next year. As their economies get going, interest rates will start to rise,” he said. “If interest rates stay lower for longer that gives more capacity for the ripple effect [from London] over the course of the year.” His prediction for the Midlands is in line with the 5% he predicts for the UK as a whole, but for the north-east and north-west he forecasts rises of 2.5% and 3% respectively.
If rates were to start to creep up, the cost of credit would be likely to go up too, which would put a squeeze on some buyers. House prices as a multiple of average incomes have reached record levels in some parts of the UK, but the low cost of borrowing means that monthly repayments have also remained low. Banks, however, need to stress-test applicants at a higher rate now, and some are already not getting loans. Cook said the rule changes, introduced in April 2014 following the mortgage market review, were still having an impact and could mean that the number of homes sold would not return to the 1.65m a year seen before the credit crunch. “I think you are going to get to a situation where people move less often,” he said. He is predicting the number of sales could rise slightly from 1.2m in 2015.
New building has increased, but the supply of properties is still not keeping up with the needs of UK households, and Nationwide’s chief economist, Robert Gardner, said in his forecast that this could be a problem for would-be buyers. “Further healthy gains in employment and rising wages are likely to bolster buyer sentiment, while borrowing costs are expected to rise only gradually,” he said. “However, the main concern is that construction activity will lag behind strengthening demand, putting upward pressure on house prices and eventually reducing affordability.”
Most commentators agree that price growth will be higher outside London than in its centre. Rics has forecast that East Anglia will be at the forefront of the UK’s market with growth of 8%, while Savills suggests the south-east outside London will see prices rise by 7%, and the east of England 6.5%. Rightmove expects sellers in outer London to ask 6% more for their properties, but suggests some buyers might give up on the capital completely. “We think there might be a flow of people moving their money out of London,” said Mitchell. “We think this might lead to stronger growth in cities like Manchester, Leeds and Liverpool.”
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