LONDON (Reuters) - British house prices will at best keep up with inflation this year and next, with no rises expected at all this year in London, where the Brexit vote is holding back the market the most, according to a Reuters poll of property market experts.
Britain’s referendum vote last year to leave the European Union has made a significant contribution to the housing slowdown in the capital. A majority of those polled said a national correction is likely if the UK leaves without a deal.
London house prices, which are more than 10 times the average salary in the capital, are rated extremely expensive, 9 on a scale of 1 to 10. The national market is also pricey, again rated a median 7 by analysts in the quarterly survey.
The milder nationwide housing market slowdown hasn’t had as much to do with repercussions from the Brexit vote as it has in London, analysts said, although they were almost evenly split on whether it was significant or not significant.
On the whole, the latest Reuters survey of 30 housing experts taken Aug 18-29 shows wilting sentiment about the market’s prospects just as those for the broader economy, at least in the near to medium term, are also in decline.
But analysts say those eroding economic prospects - Britain is now the slowest-growing major world economy - have brought with them a small silver lining for the housing market.
“Although the Brexit vote has created additional economic uncertainty, which in itself is unhelpful to the property market, one counter-balancing factor helping the market is the Brexit impact on interest rates, resulting in an expectation they will now remain low for even longer,” notes Ray Boulger at mortgage broker John Charcol.
Asked about the chances of a housing market correction if Britain leaves the EU without a deal, about two-thirds of analysts polled said it was likely or very likely. Even those who said it wasn’t still acknowledged there was a risk.
“I am not convinced that a hard Brexit would lead to a major price crash, though it may prompt a modest correction,” said Peter Dixon, economist at Commerzbank.
“At the very least, a weaker pound may induce interest from the likes of Chinese investors seeking to invest in offshore real estate.”
Britain’s extensive and restrictive planning regulation, along with steadily rising demand from new households, foreign investment and years of rampant property speculation, has kept the housing market on a tear for the past two decades.
That was interrupted by a brief correction after the financial crisis that was milder than the historic crash of more than 30 percent in the United States.
An exceptional amount of fiscal stimulus has also been aimed at the housing market in recent years, including the Conservative government’s Help to Buy programme, which has helped to drive extremely high prices even higher.
Average British house prices have more than doubled in the past two decades, and more than quadrupled in London. But average wages have risen by only a fraction of that amount.
“Those valuations would not be sustainable if interest rates began to rise, without something else to prop them up, such as further government stimulus,” notes Joanna Davies at Fathom Consulting.
Recent fiscal constraints, including a rise in stamp duty, or transaction tax, as well as a move to scale back tax relief for buy-to-let investors, started to take the wind out of the market before Britain’s vote on June 23, 2016 to leave the EU.
But with business uncertainty mounting, and anecdotal evidence and surveys showing many professionals either considering moving or in the process of leaving the UK, downward pressure on the market, particularly London, is building.
Notably, a handful of forecasters are predicting outright declines in prices in London, as much as 7.5 percent this year and 5.0 percent next.
Mark Farmer of real estate consultancy Cast notes that the part of the market driven by overseas investors and UK buy-to-let investors has “cooled dramatically” as a result of recent fiscal measures, leaving domestic demand the main driver.
Most people “currently cannot afford (housing) in large parts of London and (are) being impacted by growing concerns about Brexit and economic confidence,” he said.
“The issue is whether a downward correction gathers pace, and becomes more of a fundamental step change correction in London pricing, bringing it back to more sustainable long-term levels,” he said.
The outlook for the national market is a more positive.
Fionnuala Earley, residential research director at Hamptons International, said that prices in the north of the country still haven’t recovered to where they were before the financial crisis and so remain closer to fair value.
(For other Reuters poll stories on housing markets,)
Polling and analysis by Anisha Sheth, Mumal Rathore and Sarmista Sen; Editing by Larry King