4th December 2015
House price growth is expected to slow next year to 6% as it become harder to get on the property ladder.
Halifax is predicting annual house price growth will fall to between 4% and 6% as the expectation of a rate rise and difficultly in getting on the ladder put the brakes on the property market.
Activity in the housing market has remained at a modest level in 2015, by historical standards, and a continuing shortage of supply will continue to act as a constraint in 2016.
While price growth is expected to slow to between 4% and 6% next year and all regions will see prices rise, London will see a sharper slowdown than anywhere else.
Although homeowners have been used to seeing their house value grow significantly, the level of growth is expected to stay broadly in line with income growth beyond 2016 as rising interest rates constrain affordability.
Halifax housing economist Martin Ellis said: ‘There is little reason to expect any fundamental shift in the key market drivers in the immediate future. As a result, the substantial imbalance between supply and demand is likely to persist, maintaining upward pressure on house prices in 2016.
‘On average, UK house prices look expensive compared to incomes but valuations are supported by the low levels of property for sale, low levels of housebuilding, and exceptionally low interest rates.
‘Nonetheless, with house prices continuing to increase more quickly than average earnings, it is increasingly difficult to get on the housing ladder. This ongoing development, combined with the growing prospect of an interest rate rise, should start to put the brakes on house price growth during the course of 2016.’
He also cited a shortage of supply as one of the key problems for the housing market and said it would ‘continue to act as a significant constraint on activity over the coming year’.
Property sales next are expected to be modestly higher than this year but still well below the 1.6 million peak seen in 2006.
What will happen beyond 2015?
Ellis said there are a number of important factors to consider in the medium-term outlook for house prices.
‘Increases in bank base rate are expected to contribute to a slowing in the pace of house price growth over the medium-term. Gradual rate rises and increasing incomes should nonetheless keep mortgage payment affordability manageable for the overwhelming majority,’ he said.
‘Levels of housebuilding remain well below those required to keep up with the pace of household formation, but we do expect improvements over the medium-term. An upward trend in housebuilding would help to bring demand and supply into better balance, helping to constrain upward pressure on house prices.’
He said policymakers were focusing on house price stability which should ‘help to prevent a future build-up of mortgage debt threatening financial stability and assist in curbing house price growth over the medium and longer-terms’.
He added: ‘House price growth is expected to be broadly in line with income growth beyond 2016 as steadily rising interest rates increase the affordability constraint on the market.’