While the old adage about consulting six economists and receiving at least seven opinions in response is unlikely to go out of fashion, most would agree the outlook for this year is that things are uncertain and likely to remain so.
The housing market is far from immune from the effects of Brexit. Many organisations point to declining house sales and prices, and most predict house prices will flatline in 2019.
While they acknowledge the usual seasonal slowdown in December, organisations such as Rightmove, Halifax and Nationwide suggest the falls in transaction figures are larger than usual and predict a slow start to this year.
Lacking impetus
RICS has a similar perspective. The organisation predicts sales activity will continue to weaken and that house prices will not grow at all this year. But it also suggests the market will be protected from outright price falls by the lack of housing supply.
Yet the Bank of England has suggested that in a worst-case scenario – a “disorderly no-deal Brexit” – UK house prices could fall by as much as 30 per cent.
Brexit is not the only thing putting a dampener on the market. The housing shortage means limited choice for would-be buyers, and stretched affordability also continues to be a hindrance. On the plus side, UK mortgage rates are likely to remain at attractive levels for the foreseeable future, and a Brexit deal being struck could help improve the market’s fortunes.
The BoE’s latest quarterly bulletin on UK households has more uplifting statistics. It notes the monetary policy committee’s decision to raise interest rates to 0.75 per cent in August 2018 has not impacted borrowers greatly. Of the households that experienced a change in their mortgage rates as a result of the hike, the median increase in their monthly repayment was between £15 and £19.
Meanwhile, the proportion of households reporting they needed to cut spending, work longer hours or change mortgage payment arrangements fell from 2.6 per cent in the second half of 2017 to 1.8 per cent a year later. Many refinanced on to lower interest rates in the 12 months to September 2018, during which time the average effective rate rose by only one basis point.
However, household spending has been curtailed by a lack of real income growth over the past 10 years. Since 2016, this weakness has largely been due to rising import prices following a depreciation in sterling as a result of the EU referendum, as well as subdued income increases.
In its December House Price Index, Nationwide reported that prices were just 0.5 per cent higher than 12 months previously – the weakest growth rate since February 2013. While the number of property transactions and mortgage approvals remained broadly stable, forward indicators suggested some “softening is likely”.
Nationwide chief economist Robert Gardner attributed the slowdown to “the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs”. Chart 1 shows the annual percentage change in UK house prices over the 24 months to December 2018.
Describing the economic outlook as “unusually uncertain”, Mr Gardner says that if the economy continues to grow at a modest pace, with unemployment rates and borrowing costs remaining at current levels, UK house prices will rise “at a single-digit pace” in 2019.
But the movement in house prices varies regionally, with prices falling 0.8 per cent in London and 1.4 per cent in the outer metropolitan regions in the final quarter of 2018. Despite this, London and the South East remain the most expensive regions compared with the rest of the UK and stretched affordability is expected to remain an issue.
Figures from the Office for National Statistics suggest house prices are at the greatest multiple of average earnings since records began, with prices in London and the South East 12.4 and 10.3 times higher, respectively, than average earnings in their regions.
