The bad news just keeps stacking up for wannabe home buyers right now. Prices in the UK have been soaring for years, and people in London now need to earn £140,000 a year to get on the property ladder, according to some estimates.
Hailfax, the UK’s biggest mortgage lender, just released its 2016 outlook for the UK housing market, the first of any major lender, and although the report shows that house prices are going to keep rising over the next year, the rate at which they’re going to grow is set to slow down.
The report says that it expects house prices across the whole of the UK to rise by between 4% and 6% over the course of 2016.
Demand is massively outstripping supply all over the country, and it doesn’t look like stopping any time soon.
But considering that price growth this year is around 9.7%, this is a substantial fall and it looks as if there’s going to be a little bit of a tempering in the UK property market’s explosive growth.
Halifax’s report, led by housing economist Martin Ellis, said: “There is little reason to expect any fundamental shift in the key market drivers in the immediate future. As a result, the substantial imbalance between supply and demand is likely to persist, maintaining upward pressure on house prices in 2016.”
Figures from the Barker Review of Housing show that Britain needs to build more than 200,000 homes a year to keep up with demand, but is currently only building around 140,000.
The other big problem is that houses are still hugely unaffordable for most people. Across the country houses cost an average of £205,240, according to Halifax, around 5.3 times average earnings, while in London a home is 7.96 times the earnings of an average Londoner.
This will contribute to the slow down in house price growth, according to Halifax. “With house prices continuing to increase more quickly than average earnings, it is increasingly difficult to get on the housing ladder,” Ellis said. “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.”
Ellis added in the report that “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.”
One positive note in the report is this; that price growth in London looks to be slowing. Halifax’s data shows that in the autumn of last year, prices in the capital rose by 21%, this year it was only 13%, and if Halifax’s predictions for next year are right, this could drop to single figures.
Prices in London have been growing so rapidly in the last few years, and making housing so unaffordable that some have speculated that we are approaching a bubble, although most evidence suggests that this just isn’t true.
Looking into the future
Looking past 2016, Halifax thinks that the growth of house prices will largely keep track with wage growth, although it really depends on whether or not the government’s promises to increase house building end up being true or not.
“Levels of housebuilding remain well below those required to keep up with the pace of household formation, but we do expect improvements over the medium term,” Ellis said, adding “An upward trend in housebuilding would help to bring demand and supply into better balance, helping to constrain upward pressure on house prices.”
In last week’s Spending Review, Chancellor George Osborne announced that he expects to build 400,000 affordable homes across the country by the end of the Conservative party government in 2020. If the government can’t keep this promise then the UK’s chronic housing shortage will likely continue.
One potential downside to Halifax’s research is that this time last year, Halifax predicted that house prices would only rise by 3-5% over the course of the year. This ended up being way wide of the mark, and if their predictions are as wrong as they were this year, prices across the UK could grow by more than 10% in 2016.
Halifax has blamed missing the target on their predictions on the lack of a widely expected increase in interest rates by the Bank of England, falling mortgage costs, and once again, very low levels of supply.
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