House prices will be 'curbed in 2016 by interest rate rise'
12-06-2015
THE looming increase in interest rates will slam the brakes on house price growth across Britain next year, according to one high street lender.
By Lana Clements
House prices are not expected to rise as quickly in 2016
Home values are set to increase at a far slower rate in 2016, as the prospect of a rate increase is coupled with increased difficulty for first-time buyers to get on the ladder, predicted Halifax.
Many economists believe the base interest rate will finally lift next year after staying at 0.5 per cent for more than six years.
A rise could see mortgage costs jump overnight to make a home purchase far more expensive for buyers.
As a result, Halifax expects house prices to increase at more modest rate of between four and six per cent over the coming 12 months, after clocking up 9.7 per cent rises in 2015.
London is tipped to experience the largest slowdown in prices by the lender.
All regions are predicted to see values rise rather than fall helped by a continued shortage of supply.
But housebuilding is on course to pick up in the medium term to create a better supply balance.
Interest rates increases would make mortgages more expensive
Halifax’s housing economist Martin Ellis said: "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.
"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.
“A continuing shortage of supply is likely to continue to act as a significant constraint on activity over the coming year."
He added: "Interest rate movements are likely to have a significant bearing on house price developments in 2016 and beyond.
"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."
"Increases in Bank Base Rate are expected to contribute to a slowing in the pace of house price growth over the medium-term."