UK house prices are expected to rise by 3 per cent in 2018 and 5 per cent in cities, according to property market analyst Hometrack.
The firm identified three trends in the property market for the next year, including a surge in first time buyers, and stronger growth in regional markets.
The firm said it did not expect housing sales, currently stuck at about 1.2 million, to pick up next year but thought the share of first time buyers would overtake existing homeowners to become the largest group.
Richard Donnell, insight director at Hometrack, said he expects first time buyers to account for more than a third (35 per cent) of all buyers, overtaking existing home owners (34 per cent).
He said: “We expect first time buyer numbers to continue to grow in regional housing markets where affordability is more attractive.
“First time buyer numbers have fallen by 10 per cent in London over the last 3 years as affordability pressures limit access to the market.”
Investors buying with a mortgage meanwhile, will see a further fall in sales to 6 per cent due to tax changes and low yields impacting buying power in southern England, the firm predicted.
Buy-to-let landlords were hit by a 3 per cent stamp duty surcharge on second properties in April 2016 as well as restrictions on the tax relief they can claim on properties in the following year.
Hometrack also predicted the rise of regional markets as affordability levels in London are at an all-time high (14x earnings) with sales volumes down and house price growth (+2.9 per cent) failing to keep pace with inflation.
“In contrast, regional housing markets and cities outside the South East have further potential for material growth in house prices as affordability remains attractive. Large regional cities could register house price rises of up to 25 per cent over the next two to three years,” Mr Donnell said.
He said regional cities like Manchester, Birmingham and Glasgow have seen market activity increase which had delivered above average price growth of 6 to 8 per cent in the past 12 months.
“London is facing a drawn-out period where house prices and earnings need to re-align - we expect the rate of house price inflation to remain in low single digits over the course of 2018 with prices falling in real terms,” he said.
Meanwhile, rent prices are expected to grow 2 per cent after slowing to 1.6 per cent in 2017 across England and Wales with static rents in London and the South East acting as a drag on the headline rate of growth.
“A lack of rental growth in London is down to lower levels of in-migration and stretched affordability levels given that average rents in London are 47 per cent higher than a decade ago,” Mr Donnell said.
He said the tax changes had led to slower levels of new investment in rented homes which was tightening supply and supporting rents.