In the bank’s housing market outlook, it predicted that annual house price inflation for 2016 will fall between 4 and 6 per cent by the end of the year, with the shortage of supply likely to continue to act as a significant constraint on activity.
Although all regions are expected to experience price increases in 2016, the lender reported price growth is expected to slow more sharply in London than elsewhere in the UK.
Despite low levels of housebuilding, Halifax predicted improvements will be made over the medium-term beyond 2016 to help bring demand and supply into better balance.
Martin Ellis, Halifax’s housing economist, said there is little reason to expect any fundamental shift in the key market drivers in the immediate future.
As a result, the substantial imbalance between supply and demand is likely to persist, maintaining upward pressure on house prices in 2016.
“On average, UK house prices look expensive compared to incomes but valuations are supported by the low levels of property for sale, low levels of housebuilding, and exceptionally low interest rates.
“Nonetheless, with house prices continuing to increase more quickly than average earnings, it is increasingly difficult to get on the housing ladder,” Mr Ellis stated.
“This ongoing development, combined with the growing prospect of an interest rate rise, should start to put the brakes on house price growth during the course of 2016.”
Interest rate movements are likely to have a significant bearing on house price developments in 2016 and beyond, according to the lender.
“Indeed, the receding prospect of an imminent rate rise accompanied by further falls in mortgage rates during the year – together with weaker housing supply than expected – has been one of the key reasons why house price growth has been stronger during 2015 than we initially predicted.
“Uncertainty around the timing of the first rate increase remains considerable,” noted Mr Ellis.
“When the time finally comes for the first rise in official interest rates, the Bank of England is likely to adopt a cautious approach to raising rates due to concerns about households’ ability to make higher repayments on their debts.
“Interest rates are, therefore, likely to rise at a gradual pace.”