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Downtrend in UK Housing Prices Should Reverse by 2018

While housing prices declined across the UK since the EU referendum results were announced, many housing market experts predict housing prices will continue to decline this and next year, but will most likely continue to increase again in 2018.

by Nikolai Kuznetsov

Housing prices in the UK have been hit by the outcome of the ‘Brexit’ referendum as many experts predicted. The prices of prime properties in London have been particularly affected as investors have pulled bids due to the uncertainty surrounding the upcoming ‘Brexit’ and what it will mean for local and foreign investors. According to estate agent Frank Knight, London prime housing prices have fallen at the fastest rate in seven years since the ‘Brexit’ vote.

One of the key drivers for the housing market recovery will be the shortage of housing within the UK, according to the Royal Institute of Chartered Surveyors (RICS). Simon Rubinsohn, chief economist at the RICS, believes that "the dire shortage of available housing across the UK is continuing to push prices upwards, regardless of the uncertainty linked to the ongoing discussions surrounding Brexit.”

Property firm Savills believes that due to ‘Brexit’ uncertainty and weaker consumer sentiment housing prices will flatline in 2017. Lucian Cook, Head of Residential Research at Savills, stated: "What is clear is that the housing market does not like political and economic uncertainty and this points to a lower growth, lower transaction market across the board." However, Savills research also indicates that in 2018 housing prices will recover and grow at a modest 2%, with a 5% rise in prices expected for 2019.

While Senior economist at the Centre for Economics and Business Research (CEBR), Nina Skero, believes that “although Brexit has certainly sent shockwaves, CEBR expects the housing market to slow down, but not plummet.”

Furthermore, the decision by the British public to leave the European Union has prompted the Bank of England to cut interest rates from 0.5% to a historic low of 0.25%, to prevent the UK economy from contracting. This, in turn, has made personal loans and mortgages cheaper for consumers. Lower interest rates encourage spending, including the purchase of new properties. A longer low-interest rate environment will, therefore, also help the housing market to recover.

While many first time home buyers and property investors are waiting for the ‘Brexit’ dust to settle, housing prices will continue to remain soft. However, as the uncertainty surrounding the conditions of the ‘Brexit’ will start to fade clearer and once Article 50 is invoked and the exit procedure will begin, investors demand for UK property will likely continue to rise again. Given that housing demand still clearly outweighs housing supply in the UK and given that London is still one of the hottest property markets for foreign investors, it is difficult to image a long-term downtrend in property prices that would last several years. Especially as a weaker pound makes UK property substantially cheaper for foreign investors there shouldn’t be a shortage of demand once the ‘Brexit’ uncertainty dissolves.

While the threat remains that ‘Brexit’ negotiations could turn ugly and that the final conditions of Britain leaving the European Union ends up hurting the UK economy and, therefore, also its housing market, the fundamentals underpinning the UK property market are too strong for a multi-year price decline to occur. Now may be the time to stay on the sidelines as a risk-averse property investor, but once the ‘Brexit’ uncertainty starts to subside it might be wiser to buy again sooner than later before prices increase again.

*This post was published according to the "Contributed Article Terms and Conditions"

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