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Will UK house prices continue to rise in 2016?

Fri 22 Jan 2016

Another new year, another round of brave property predictions but will house prices continue to rise in 2016?

Potential interest rate rises, imminent changes for buy-to-let landlords and an EU referendum. One thing is for sure, 2016 is not going to be a dull year for the property market.

Many got their predictions wrong at the beginning of 2015, a year in which the housing market was supposed to cool off. The latest figures from Halifax suggests that house prices rose by 9.5% in 2015, making it the biggest annual increase since 2006, the year before our economy almost collapsed. The average house price rose to £208,000 – more than five and a half times the average full-time earnings of a male worker. And in London, prices soared by 12 per cent in the year to November, including a 22 per cent rise in Newham.

The main driver behind 2015’s increases was that age-old problem of not enough supply to meet demand. If, as seems likely, there continues to be a lack of homes despite various house-building initiatives from the government (including a new year pledge to build 13,000 homes in the south east) prices are expected to rise further in 2016.

Simon Rubinsohn, Chief Economist with the Royal Institution of Chartered Surveyors, said: “Housing has clearly leapt up the government’s agenda but despite the raft of initiatives announced over the past year, the lags involved in development mean that prices, and for that matter rents, are likely to rise further over the next 12 months.”

He added: “Lack of stock will continue to be the principal driver of this trend but the likely persistence of cheap money will compound it for the time being.

“There remains a substantial gap between demand and supply,” agrees Martin Ellis, a housing economist with Halifax. “The latest figures show a further decline in the number of properties available for sale. This situation is unlikely to change significantly in the short term, resulting in continuing upward pressure on prices.”

Mr Ellis adds, however, that the quarterly growth rate slowed in the final two months of 2015, which would indicate “a possible slight softening in the underlying rate of price growth.”

Halifax’s figures were also in marked contrast to other lenders’ assessments of 2015. Nationwide said that prices only rose by 4.5% in 2015, less than half of Halifax’s estimate.

Either way, the upward trend has shown no sign of abating in the opening week of 2016. A major driver in the first quarter will be buy-to-let landlords seeking to snap up properties before Chancellor George Osborne’s three per cent hike to stamp duty comes into effect on April 1st. The Council for Mortgage Lenders expects subsequent “higher activity levels in the first quarter of 2016 than would otherwise have been the case”, but it also anticipates a tail-off in subsequent quarters.

The Chancellor has made no secret of his desire to see interest rates begin to rise this year after being kept at a record low of 0.5% since 2009. He believes it will be an indication that the UK economy is finally “normalising” and warned home owners this week to brace themselves.

Lucian Cook, Director of Savills UK residential research, said: “UK mainstream house prices are forecast to rise by an average of five per cent by the end of 2016, ranging from seven per cent in the south east to 2.5 per cent in the north east. However, over the next five years much depends on the speed at which interest rates rise. If rates rise too quickly mainstream house price growth will be quickly curtailed. On the flip side, 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.”

Where, though, are prices expected to rise the most? And by how much?

Mr Cook said: “Lower value outer London boroughs have greater remaining capacity for house price growth than higher value parts of the capital, having grown in line with the south east and the east of England rather than London itself over recent years.”

He added: “Walthamstow and Lewisham are expected to show the strongest growth, outperforming the mainstream submarkets of boroughs such as Hammersmith & Fulham and Richmond.

“The strongest price rises are therefore expected in parts of the south and east of England, which offer value relative to the capital and should benefit as the ripple gains traction. Growth beyond will depend on the strength of regional wealth generation and the ability of cities such as Manchester and Birmingham to act as catalysts to reinvigorate their housing markets.”

Daniel Killick, Associate Director of Sales and Lettings at Chestertons, Kew, has specific figures in mind for London. He said: “Despite choppy waters ahead, buyer demand is still high and prices have been rising steadily across London in all bar prime central areas across the past 12 months.

“In prime central London I would expect price growth this year will improve marginally to around two per cent. Price growth in the wider market will be higher at around six per cent for the year, though double-digit growth seems very unlikely given the constraints outlined and the ongoing shortage of homes coming to market.”

Outside London, James Mackenzie, Head of Strutt & Parker’s Country Department, puts his money on Banbury and North Oxfordshire for this year’s hotspots.

“From Banbury you get into Marylebone station – a nice quick commute and not nearly as rammed as Waterloo and King’s Cross. We know that the commute here is gaining popularity because the station at Banbury had to build a new car park last year. North Oxfordshire could very easily become the new Cotswolds. It’s a very pretty area full of yellow stone houses but more affordable than parts of Gloucestershire. Buy here before prices rise.”

You heard it here first.

Onthemarket, 22/01/16,

"Margaret and the Anker Lettings team provide brilliant customer service and professionalism that balances the needs of both tenant and landlord. I have spent decades renting across the UK and my experience with Anker was easily the best. They know their patch, are super efficient but best of all they really care and treat tenants like people and not just numbers. Very highly recommended!!"
Emma Johns - Tenant