House price growth is set to slow over the next three years due to affordability problems and the effects of the government’s buy-to-let curbs, a new study has found.
According to the latest Ernst & Young ITEM Club UK Winter forecast, property prices are predicted to rise by 6.5% this year. This growth will ease back to 4.7% in 2017, before falling to 4.5% in 2018.
The report said: “We do expect the growing unaffordability of property – the Halifax reported that the price-to-income ratio was 5.5 in November, the highest since early-2008 – to prevent an acceleration in price growth.”
As part of the government’s efforts to dampen the buy-to-let market, landlords and second home owners will have to pay an additional 3% on stamp duty from April. The amount of tax relief landlords can claim on properties will also fall from April 2017.
“We expect the mortgage and housing markets to remain buoyant during the quarter as buy-to-let landlords anticipate the higher stamp duty that they will face in April. Combined with a phasing out of mortgage interest tax relief, this is then likely to slow the buy-to-let market.”
The report said the imbalance between supply and demand should ensure that house prices continue to rise.
“With household incomes set to continue to grow strongly and interest rates likely to be on hold for some time yet, the chances of demand for housing falling back to any great extent look remote.”
Following recent government initiatives, housing investment is expected to recover strongly, growing from 2.1% in 2015 to 6.9% this year and 8.3% in 2017.
Peter Spencer, chief economic advisor at EY, said: “The housing market ended 2015 on a high note and we expect it to remain very active in 2016, particularly in the first quarter as landlords anticipate the stamp duty increase in April. The UK’s fundamental imbalance between supply and demand should ensure that house prices continue to rise. However, the buy to let market is likely to slow following the increase in stamp duty and the phasing out of mortgage interest tax relief.”
