UK house price growth is expected to fall in 2017 as weakening economic conditions and rising inflation start to hit household incomes.
According to estate agent Countrywide, house price growth is predicted to fall to 1.5% in 2017 compared with 5% last year.
However, despite a tough start to the year prices will go up 2% in 2018, growing at an annual rate of 3% in 2019.
Greater London will be hit the hardest, with price growth slowing to 0% in 2017 before rising by 2.5% in 2018 and 4% in 2019.
Prime central London will see price growth of 2% in 2017, followed by 4% and 5% in the next two years.
Across the South East and East of England price growth will slow in 2017 to 1.5% and 3.5% respectively.
In 2018 prices in these areas will rise 2.5% and a slower 2% respectively, with a similar path for house prices in the South West of 1.5% this year to 2% in 2017.
The North East is expected to see zero price growth this year, increasing to 1% in 2018 and 2.5% in 2019. Price growth in the North West, Yorkshire and Humberside and the Midlands will follow a similar pattern of weaker annual price growth in 2017 and 2018, rising again in 2019.
Weaker economic conditions will act as a brake on price growth as inflation eats into household incomes.
Countrywide expects interest rates to begin to increase very slowly from the middle of next year.
This, combined with a more cautious approach from lenders, will prevent a faster increase in prices as wage growth picks up.
As Brexit negotiations continue, confidence will be volatile which will have implications for the pace of economic and housing market recovery.
The estate agent said that the outcome of these negotiations is the biggest risk to performance and is weighted to the downside.
The lack of supply will continue to support the level of price growth.
Despite little recovery in the levels of housing transactions – due to affordability issues and fewer buy-to-let purchases – the rate of new building is not expected to gather enough pace over the next two years to catch up with previous shortfalls.
Fionnuala Earley, Countrywide’s chief economist, said: “Economic conditions for households will remain challenging over the next year as inflation eats into budgets and interest rates begin to rise. In addition, fewer landlord purchasers and the later age at which people buy, is affecting the level of demand. But we expect the UK economy to recover and wage growth to pick up in response to global growth. That, combined with a continued lack of housing supply, will help to support house prices.
“The housing market is sensitive to confidence which will be affected by the outcome of Brexit negotiations and the implications this will have – particularly on employment.”
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