After three years of political deadlock, December’s General Election result brought greater clarity in the government’s Brexit position and decisive domestic policy.
But with less than a year to agree the UK’s future trading relationship with the EU, scattered clouds of uncertainty continue to hang over the housing market.
UK house prices in November 2019 were just 0.8 per cent higher than 12 months before, according to Nationwide Building Society. Its latest regional indices show values falling in London and the south east. The strongest growth was in Wales and the north west.
A clear parliamentary majority could provide the foundation for accelerated housing market activity in the coming months.
But we also face a backdrop of suppressed gross domestic product and wage growth.
Ongoing uncertainty over the UK’s trading relationship with the EU during the transition period and the impact of a slowing global economy means potential home movers will remain cautious about their household finances, particularly in the second half of the year.
We predict average UK house price growth will remain subdued at 1 per cent in 2020, and house price growth to increase once we have greater clarity over our relationship with the EU in 2021.
Greater certainty should translate into higher growth in wages and GDP, acting as a stimulus for housing demand, while interest rates remain low.
We forecast 4.5 per cent UK house price growth in 2021.
Beyond 2021, continued wage growth will help to support housing demand, while rising interest rates act as a drag on affordability at the point of getting a mortgage. Our forecast is for 3 per cent house price growth in 2022, 2023 and 2024.
Accounting for compound interest, that means we are predicting 15.3 per cent growth in UK house prices by 2024. That is against the context of 15.6 per cent income growth.
This story will vary widely across the UK and different parts of the market, as we see a rebalancing between regions.
In London, affordability is still highly constrained for those buying with a mortgage. We expect just 4 per cent price growth for mainstream properties over the next five years.
Buyers in the prime, central parts of London tend to be less reliant on mortgage finance, however. Prime central London now looks relatively good value, particularly from an international perspective: in September 2019, the effective discount peaked at 42 per cent below its 2014 peak in US dollar terms. Here we expect to see much stronger growth, even in the face of a potential 3 per cent stamp duty surcharge for foreign buyers, promised in the Conservative manifesto.
We predict the north west will see the fastest house price growth over the next five years: 24 per cent. High levels of infrastructure investment and employment growth will support housing demand there, and mortgage affordability is far less stretched than in London and the south.
We also predict strong growth across the rest of the north and midlands, where affordability is less of a constraint and where rental yields are higher, attracting investors. These are also expected to be the strongest performing prime regional markets, with growth at approximately 20.5 per cent.