New Year: No cheer for investors in UK market as demand sets to fall

This New Year may not present any cheer for investors in the UK property market as demand for home is set to fall even as current shortage of supply will mean prices continue to rise, according to new research.

Halifax, a housing finance lender, notes in the new report that with not enough new homes being built and historic low interest rates, the supply and demand gap will go on, pointing out however that slower economic growth and affordability constraints will still affect the market.
Propertywire in its year-end publication says the lender (Hallifax) is forecasting that prices will rise between 1 percent and 4 percent during 2017 but cannot be more precise due to the high level of uncertainty over how the economy will perform with the official process of leaving the European Union beginning by the end of March.
It says that reduced housing demand is likely to result in lower house sales as more people respond to weaker economic conditions and the deterioration in housing affordability by not buying or moving home.
The Halifax also predicts that the buy-to-let sector is expected to cool further in 2017 as a result of impending tax changes and stricter underwriting criteria. Landlords also face higher costs with a ban on letting fees expected to be passed on by agents.
Meanwhile, the relatively adverse housing affordability position in London suggests that price growth will slow more sharply in the capital than elsewhere in the UK during 2017.
“The housing market is critically dependent on how the wider economy evolves. We consider it most likely that the UK economy will soften over the course of 2017. This is most likely to result from the weakening of sterling, pushing up import costs and dragging on purchasing power, both for consumers and as a determinant of business investment spending” said the Halifax’s housing economist, Martin Ellis.
Continuing, Ellis says “slower economic growth in 2017 is likely to result in pressure on employment with a risk of a rise in unemployment. This deterioration in the labour market, together with an expected squeeze on households’ spending power, as inflation picks up and outpaces earnings growth later in the year, is likely to curb housing demand”.
“These factors, combined with increasing affordability constraints, particularly in London and the South East, are likely to result in a further easing in annual house price growth during the coming year, continuing the trend seen since the spring of 2016”, he added.
He pointed out that the level of uncertainty around any economic forecast is higher than usual at present. “It’s very difficult to predict the likely path for both consumer and business confidence during 2017, due to a wide range of possible outcomes regarding the extent of the expected worsening in labour market conditions and the size of the squeeze on purchasing power”, said Ellis.

CHUKA UROKO