Brexit Puts a Ceiling on London Housing Demand, Prices: Reuters Poll

LONDON—Price rises in Britain’s overvalued housing market will lag inflation this year and next and in London prices are likely to fall in 2018 as Brexit keeps a lid on demand, a Reuters poll found.

The survey of 30 housing market specialists taken in the past few weeks, predicted home prices will rise on average 1.7 percent nationally this year – much slower than the predicted 2.5 percent increase in consumer prices.

In London, where foreign investors have fueled skyrocketing prices, they will fall a modest 1.0 percent this year. If realized, it would mark the first annual decline for nearly a decade – after the global financial crisis hit.

Sterlingis down around 10 percent against the dollar since Britain voted nearly two years ago to leave the European Union, making properties cheaper for overseas investors but generating prolonged ambiguity over the divorce talks that has made buyers wary.

Next year, house prices will rise 2.0 nationally and nudge up 0.5 percent in London. In 2020, they are forecast to increase 2.0 percent in both markets, the poll found.

The range of forecasts for London prices this year was wide—from a 6.0 percent fall to a 2.5 percent rise.

“There is a lot of uncertainty in the market as to where we are with Brexit negotiations. That has really kept a lid on further growth. There is a wait-and-see attitude,” said Oliver Knight, associate at estate agency Knight Frank.

“We will see a slightly better performance in 2019 as the pressures between supply and demand really start coming together.”

Brexit Biting

Housebuilder Crest Nicholson , which sells residential properties in London and elsewhere in the UK, lowered its full-year operating margin forecast in May to the bottom end of its previous range.

“Now that we are one year pre-Brexit, it is entirely plausible that due to the combination of uncertainties, some buyers may think why not wait another year and see how life is going to look,” Chief Executive Patrick Bergin told Reuters last month.

With still little clarity on how post-Brexit Britain will operate, demand in the capital will decrease over the next year, 15 of 26 respondents to an extra question said. Ten said it would stay the same and one said it would increase.

The most common reason cited was Britain’s decision to leave the European Union, which is due to take effect at the end of March next year. Other reasons given included changes to house sale and mortgage taxes.

“There is evidence to suggest that the phasing out of mortgage tax relief for buy-to-let owners has hammered the market. This will let some much needed air out of the market, particularly in London and the south east,” said Peter Dixon, an economist at Commerzbank.

The average asking price for a home was 308,075 pounds ($412,173) nationally in May and more than double that in London, according to property website Rightmove, making home ownership just a dream for first time buyers struggling to save the 10 percent deposit required by most mortgage lenders.

So when asked to rate house prices, on a scale of one to 10 where one is extremely cheap and 10 extremely expensive, respondents gave a median of nine for London and seven nationally.

“UK house price/earnings ratios are very high, but taking into consideration low interest rates affordability looks relatively normal,” said George Buckley, chief UK economist at Nomura.

The Bank of England has followed an ultra-easy monetary policy road since the financial crisis and while it is expected to raise interest rates in August, they will remain at historically rock-bottom levels, making borrowing cheap.