While house price growth has fallen back to its lowest since 2013, prices are still expected to rise by over £50,000 in the next four years despite Brexit negotiations.
According to research from the Centre for Economics and Business Research, UK house prices will rise by just 4.4% this year – taking the average house price in the UK up to £220,000.
House price growth is expected to remain below 5% for the next two years until activity in the market then picks up again.
Growth is then expected to continue, with average prices hitting £272,000 by 2021.
Kay Daniel Neufeld, Cebr economist and main author of the report, said: “Transaction numbers are slowly recovering from the introduction of a stamp duty surcharge on second homes in April 2016, which has led to considerable distortions in the market. Mortgage approvals, while still low by historical standards, are nearing post-crisis heights, boosted by low interest rates and favourable borrowing conditions.
“Yet this mild recovery will not last as rising inflation and stagnating wage growth are expected to depress households’ spending power in the coming months. The worsening financial situation of households could easily have a knock-on effect on consumer confidence, suppressing housing demand in 2017 and 2018.”
Mortgage interest relief is being reduced to the base income tax rate as part of the government’s clampdown on the buy-to-let market.
The changes mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
Last year, the government also increased stamp duty on buy-to-let and second homes to 3%.
“Government interventions in the buy-to-let sector further sap demand out of the market. Starting in April, private buy-to-let investors will no longer be able to fully deduct mortgage interest payments from their tax bills, leaving them with lower net profits,” said Neufeld.
Jeremy Duncombe, director at Legal & General Mortgage Club, welcomed the figures as they suggested prices were finally starting to rise closer to inflation.
“Despite a reduction in the momentum of house price growth, currently predicted at 4.4%, the underlying fact remains that our housing market is hindered by an imbalance between supply and demand.”
David Hollingworth, director at broker London & Country Mortgages, said: “The lack of supply of new property continues to be a concern, as prices keep rising despite the ongoing difficulties that first time buyers face in building an adequate deposit. However, consumer confidence following the referendum remained remarkably solid bouncing back quickly after an initial wobble.
“Mortgage rates will have played a key role in supporting that as homebuyers have had some of the lowest rates on record open to them. Fixed rates have remained popular, as borrowers seek to protect against the potential for rate rises to come and the lift in monthly costs that are now feeding through, as a result of the weaker pound post-referendum and the triggering of Article 50.”
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