House prices in London and the south-east will fall next year as the cautious mood that has gripped the property market in recent months continues into 2018, the body that represents surveyors and valuers has predicted.
The Royal Institution of Chartered Surveyors (RICS) said that lower prices were rippling out from central London and would spread to the capital’s outer suburbs and the home counties in the months ahead.
In a reversal of the UK’s traditional north-south pattern, RICS said only higher prices in areas where houses are more affordable – Scotland, Wales, Northern Ireland and northwest England – would prevent a nationwide drop in the cost of property in 2018.
It added that in each case, house prices (relative to earnings) were comfortably below their levels before the financial crisis of a decade ago, which meant constraints on potential buyers were not nearly so severe as in London and the south-east.
RICS said levels of activity in the residential property sector had been “a little underwhelming throughout 2017”, with the closing months of the year especially tough. Economic uncertainty meant buyer inquiries had stalled, sales volumes had flattened out and sentiment had turned cautious.
Tarrant Parsons, RICS economist, said: “Following a pretty lacklustre finish to 2017, the indications are that momentum across the housing market will be lacking as 2018 gets under way. With several of the forces currently weighing on activity set to persist over the near term, it’s difficult to envisage a material step-up in impetus during the next 12 months.
“However, the fundamentals are not much changed from the end of 2017, so levels of activity should soften only marginally when compared to the year just ending. A real lack of stock coming onto the market remains one of the biggest challenges, while affordability constraints are increasingly curbing demand in some parts. Given these dynamics, price growth may fade to produce a virtually flat outturn for 2018.”
He added: “That said, despite the recent interest rate hike, mortgage rates are set to remain very favourable, with the prospect of further rises seemingly minimal over the coming year. Alongside this, government schemes such as help to buy should continue to provide some support to sales activity.”
Britain’s leading mortgage lender, the Halifax, said it thought prices would rise by 0-3% in 2018, but agreed with RICS that the market would be weakest in London and the south-east.
Russell Galley, managing director of Halifax bank, said: “At 9.1% in the third quarter of 2017, the north saw the steepest annual rate of house price growth, followed by the east Midlands and the northwest. London was the weakest performing English region with an annual rate of 2.6%, down from a recent peak of 21% in Q1 2016. In the south-east, for the first time in three-and-a-half years, house prices increased at a softer pace than the UK as a whole.
“As a result of the rapid price growth in the capital, house prices in relation to average earnings are still very high in London; at 8.8 times annual average earnings they are close to the historical high of 9.
“Additionally, mortgage affordability in London is worse than its long-run average, the only region in the UK where this is so. These affordability issues suggest that price growth will continue to remain low. Outside London, there are few signs of significant stresses and imbalances at present, limiting the risk of a sharp slowdown elsewhere.”
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