The number of homes sold next year is expected fall as a result economic uncertainty over the decision to leave the EU and tax changes in the housing and mortgage markets, according to the Council of Mortgage Lenders.
The CML said the number of property transactions would set to fall from 1,260 to 1,170 after revising its housing market forecast.
The trade body, which represents UK lenders, said its forecast was more pessimistic “partly relating to the economic uncertainty from the EU referendum, but also because of tax and regulatory changes in the housing and mortgage market”.
The government introduced a 3% stamp duty increase on second homes on 1 April this year to curb the buy-to-let market and free up property for first-time buyers.
The basic rate of tax relief landlords can claim on properties is set to fall to 20% from April 2017.
This is due to be phased in over a four-year period starting from April 2017. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
The CML said that while property transactions have been subdued through the second half of the year, robust demand in the housing market meant prices were unlikely to dip during the next two years.
Gross lending is now expected to be £248 billion in 2017, down from £261million, while net lending is predicted to be £30 million, compared to last year’s forecast of £39 million.
However, it believes the housing market will be relatively insulated from the economic impacts of Brexit compared with other parts of the economy, as most activity is driven domestically.
Paul Smee, CML director general, said: “Property transactions look set to drift down slightly, although we do not expect house prices to fall, and net lending seems unlikely to get above £30 billion next year.
“The housing market is relatively well insulated from direct Brexit effects as most activity is driven domestically, but it is not immune from more generalised economic uncertainty. And we expect any modest strengthening in homeowner lending to be rather offset by a less active house purchase market in buy-to-let, as both tax and regulatory changes bite on landlords.”
Jonathan Harris, director of mortgage broker Anderson Harris, said: ‘It is no surprise that the CML has revised its forecast for the mortgage market downwards for next year. 2016 has been a tricky year with challenges presented by high stamp duty costs and the referendum outcome, and uncertainty will continue into next year, coupled with the impending changes to mortgage interest tax relief for landlords which will have a negative impact on buy-to-let.
“It is hard to see any movement in interest rates and mortgage rates are likely to be fairly settled as well. We do not expect them to rise significantly next year – while economic news will impact Swap rate movements from time to time pushing up the cost of borrowing, overall we expect the mortgage market to tick along much as it has.
“Borrowers will continue to need good independent mortgage advice, particularly landlords as tax changes come in from April. The challenger banks will provide a vital role, supplying the most innovative products, assisting those who are particularly struggling to get funding, such as the self-employed, older borrowers and first-time buyers.”
