The Centre for Economics and Business Research has claimed that a combination of factors including higher interest rates, the impending general election in May and fewer foreign property buyers will cause a turnaround in the progress of the housing prices across the country ñ from an 8.8% increase in 2014, to a 0.6% decrease in 2015. Prices in London, say the CEBR, will see an even more drastic reversal, from a 16.8% rise to a 3.3% drop.
The Stamp Duty reforms announced in George Osborneís Autumn Statement last year are expected to increase demand for houses, particularly among first-time buyers, but this is unlikely to be enough to offset all of the other factors contributing to the slump in prices generally.
Nina Skerbo, economist and one of the principles authors of the CEBRís recent report, had this to say on the matter:
ìThe new stamp-duty system lowers tax payments for 98% of home buyers and will give a slight boost to the market, but not enough to prevent a price drop. The uncertainty surrounding Mayís election, proposed changes to property taxation, and reduced foreign demand are already bringing down house prices. Subdued price rises or modest declines also reflect a correction in the housing market after a period of very strong price growth.î
The CEBRís report claimed that even after the general election in May, ìwhen the elements of political and taxation uncertainty are less of a factor, the CEBR does not expect a strong…bounce back.î
These predictions from the CEBR reflect a trend that we saw in the last quarter of 2014, when house prices fell by over 4% in the Capital. Indeed it is the belief of the CEBR that, in what marks a change to the common trend, house price change in London will actually be leading the fall, rather than growth, of house prices nationally. This all comes partly off the back the fear of mansion tax (should labour come into power), as well as general pre-election uncertainty combined with all of the factors mentioned above.
However, these beliefs are not shared by all economists. Indeed the folks over at Halifax, while agreeing with the prediction of a pre-election slump in prices, are claiming that once said lull is over, we can expect to see a rise of 3-5% in house prices nationally this year. And indeed Halifaxís recent report that the number of first-time buyers in 2014 reached a record, 7-year high, seems to contradict the CEBRís claims of reduced demand on the property market.
However, the decline in foreign buyers is certainly evident, and is reinforced by the general economic slump throughout the Eurozone and indeed globally, following plummeting oil prices.
The Royal Institute of Chartered Surveyors agree with Halifax, predicting a nationwide increase of 3%, with prices staying the same in London.
The general belief though, which differs only in degree but not kind among analysts, is that the market is certainly cooling, that the several factors in place will slow house price growth, and that the progression of prices in London will have an unusually adverse effect on the growth of house prices across the nation.
As ever, predicting the future is rather difficult, but what we can be certain of at the very least, is a definite stalling in the increase of house prices at least until May. Whether that amounts to an actual drop or prolonged stagnation remains to be seen.
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