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House prices 2016: what to expect


12-30-2015

 

Can the market continue to rise?

 
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The British are notoriously obsessed with
house prices, and with good reason - from the first-time buyers anxious that properties are spiralling ever-further out of reach to retirees hoping to boost their income by downsizing.

Over the last year, average prices across the UK have risen by 4.2% according to Land Registry figures, with some showing even bigger growth - notably London, where asking prices rose by 9.5%.

So what can we expect from 2016?

Estate agent Knight Frank - which correctly predicted the slowdown in house price growth seen over the last year -
says it expects prices to rise by 4.1% over the course of the next year.

By the end of 2020, it says, prices will be 20.3% higher than they are now.

But, as always, there are big regional differences.

"Values are growing more strongly in the South of England (particularly London and the South East) compared to slower growth in the North of England, Scotland and Wales," says Knight Frank's head of residential research Liam Bailey.

"These regional differences are unlikely to unwind significantly in 2016, although the improving economic and employment picture, especially in the regions, will underpin pricing."

While growth in the north east is expected only to reach 2.5%, it's forecast to hit 5% in London - although luxury properties aren't expected to do so well.

The main reason is the changes made to stamp duty this time last year, which saw the amount payable on properties valued above £1.5 million shoot up to 12%. Indeed, estate agency Haart predicts that homes currently priced over £1 million could fall in value by as much as 10% over the next year.

According to Knight Frank, prime outer London properties will go up in price by just 3.5% next year, and prime central London by only 2.0%.

Savills is making very similar predictions about house prices in different regions. It's expecting the strongest rises in parts of the south and east of England, thanks to a ripple effect out of London.

Outside this area, it says, growth will depend on whether cities such as Manchester and Birmingham can reinvent themselves.

"Positive sentiment for cities in the north of England is also being bolstered by talk of a northern powerhouse, despite the proposals being some way off," says Savills research associate director Sophie Chick.

Savills, too, sees price rises slowing for prime London properties but tips Walthamstow and Lewisham for the greatest growth.

There are, of course, some unknowns.

"Much depends on the speed at which interest rates rise," says Lucian Cook, head of Savills residential research.

"If rates rise too quickly, mainstream house price growth will be quickly curtailed. On the flipside, if rates remain low for too long, there is a risk that prices will rise too far, creating affordability issues further down the line when they do eventually rise."

House prices will also be affected by the availability of housing, especially at the bottom end of the market - and things here aren't looking promising.

While the level of house building has picked up a little in recent years, it's still way behind the government target of 400,000 new homes under construction by 2020. This target is in any case inadequate, says the Town and Country Planning Association, which believes that at least 240,000 new homes a year are needed until 2031.
As a result, prices at the bottom end of the market are likely to remain high.

Recently, reports have suggested that house prices in London, at least, may be
approaching a bubble. Even if this is the case, though, the bubble's unlikely to pop in the next two or three years - bad news for first-time buyers or those looking to trade up.

Knight Frank property price forecast: price rises 2016
UK: 4.1%
London: 5.0%
North East: 2.5%
North West: 3.0%
Yorks & Humber: 3.5%
East Midlands: 4.0%
West Midlands: 4.0%
East of England: 4.5%
South East: 4.0%
South West: 4.0%
Wales: 3.5%
Scotland: 3.0%
Prime central London: 2.0%
Prime outer London: 3.5%

Savills property price forecast: price rises 2016
UK: 5%
London: 5.5%
North East: 2.5%
North West: 3.0%
Yorks & Humber: 3.5%
East Midlands: 5.0%
West Midlands: 4.5%
East of England: 6.5%
South East: 7.0%
South West: 6.0%
Wales: 4.0%
Scotland: 3.0%
 
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