The investment advice company UBS Wealth Management says it is likely that UK house prices will flatline by the end of 2016 with an outside chance that they could instead reduce by five per cent if wider economic conditions deteriorate.
This follows yesterday’s report by Countrywide that average house prices across the UK are likely to dip one per cent next year, partly down to the Brexit effect.
“The most important factor influencing the outlook for UK housing is how the economy reacts in the aftermath of the shock Brexit result. We expect GDP growth to fall in the second half of the year, and only stage a meagre recovery thereafter” warns Caroline Simmons, deputy head of the firm’s UK investment office.
However, there are signs that any housing downturn is likely to be less severe than that of the 2008 financial crisis.
UBS says that historically the supply of secured credit is the most significant driver of house price growth, and that this will be broadly supported by the current well-capitalised banking sector, recent measures announced by the Bank of England and the reduction in base rate from 0.5 per cent to 0.25 per cent.
However, UBS says the market may be driven in future by other factors - still including access to credit but also affordability, employment prospects and consumer sentiment.
“Unlike the slowdown in 2007 to 2009, the origins of which can be traced to a financial sector crisis, we believe the supply of credit to the UK economy will be unhindered” says Simmons.
“However, consumer confidence has deteriorated since the Brexit vote, and uncertainty about the economic outlook is also likely to weigh on business investment and hiring” she adds.
Simmons says the London housing market - which she says peaked a year ago, in August 2015 - suffers not only from Brexit volatility but also from higher stamp duty levels for the most expensive properties. A redeeming consequence of Brexit, she says, is that some overseas buyers may see London properties as cheaper now thanks to sharp falls in the value of Sterling.