By Jonathan Cable
LONDON (Reuters) – The days of London house price rises hugely outpacing inflation won’t be returning anytime soon, even if Britain and the EU strike a Brexit deal, the vast majority of economists and analysts polled by Reuters said.
Property values in the capital, long a haven for foreign investors, more than tripled in the last 20 years, but demand and turnover have crumbled since the June 2016 vote to leave the European Union and property taxes were raised.
According to the Nov 13-22 Reuters poll, London house prices will fall 1.7 percent this year and another 0.3 percent in 2019. Asking prices in London fell 1.7 percent this month from October, according to property website Rightmove.
Sterling, the stock market and businesses have had a turbulent few years since Britons narrowly voted to end their 45-year membership of the EU.
With just over four months left until Brexit day, Prime Minister Theresa May faces opposition from lawmakers in all parties to her negotiated withdrawal deal, fuelling fears the country may leave without one.
As that risk appeared to grow on Nov. 15, shares in housebuilders Persimmon, Taylor Wimpey and Berkeley Group fell between 6 and 7 percent in their worst daily performance since the referendum.
“Things are starting to look a bit bleak. Uncertainty is about the only thing we can be certain about over the next two years,” said independent buying agent Henry Pryor.
Asked if there would be a return to strong turnover and above-inflation house price growth in London and the South East if a Brexit deal was struck, 14 of 17 respondents said no. Two said it would happen regardless and one said it depended on the deal.
But Brexit is not the only factor holding back prices – a sharp increase in Stamp Duty Land Tax, paid when buying a house, has particularly affected the capital where houses are much more expensive than the rest of the country.
“The high rates of SDLT will continue to stifle transaction volumes, especially in expensive price areas like London and the South East,” said Ray Boulger, a senior manager at mortgage broker John Charcol.
After next year’s modest dip London prices will rise 1.5 percent in 2020, the poll found. A separate Reuters survey said overall inflation would be 2.0 percent that year. [ECILT/GB]
Graphic on UK and London house prices forecast: https://tmsnrt.rs/2Q89SKn?eikon=true
Graphic on UK house price-to-earnings ratio: https://tmsnrt.rs/2R1jZgW
Graphic on outlook for London’s housing market: https://tmsnrt.rs/2DCgt8Z?eikon=true
LITTLECHANCE OF CORRECTION
When asked about the probability of a significant correction in London’s housing market by end-2019 the median forecast was only 20 percent, significantly down from the 29 percent given in August. That may be partly explained by the view that prices are already falling.
But not everyone was gloomy about the capital’s prospects.
“London demand is starting to poke its head above the stamp duty-laden parapet again,” said Russell Quirk, chief executive of online estate agent eMoov.
“History tells us that you can’t subdue London long term and therefore it’s clear that the current downturn in the capital’s volumes and values is temporary.”
Nationally, house prices are forecast to rise 2.0 percent this year, 1.8 percent year and 2.0 percent again in 2020, the poll found.
Those moderate gains are below expectations for wage increases and will likely cheer first-time buyers who are struggling to get on the property ladder.
When asked to rate the level of London house prices on a scale of 1 to 10, where one is extremely cheap and 10 extremely expensive, the median response was 8. Nationally they were rated 7, where it has been for a couple of years.
While borrowing costs are currently low, the Bank of England is forecast to raise rates again after Brexit. But the new level of Bank Rate will still be historically low at 1.0 percent and it is not expected to rise to 1.25 percent until early 2020.
(Polling by Vivek Mishra and Sarmista Sen; Graphics by Andy Bruce and Indradip Ghosh; Editing by Ross Finley and John Stonestreet)