UK homes price rise to cool, but become more unaffordable: Reuters poll
Reuters
Published Dec 01, 2021 01:14
Updated Dec 01, 2021 01:35
By Jonathan Cable
LONDON (Reuters) - A surge in British property prices is set to ease over the coming years, but homes will become less affordable as interest rates rise and values stay high, a Reuters poll of housing market specialists found.
Record low borrowing costs, along with a desire for more living space as millions of Britons worked from home to try to contain the spread of coronavirus, mean average home prices will increase 8.7% this year, the Nov. 18-30 poll of 17 market experts predicted.
Next year, they will rise 4.0% before slowing to 3.0% in 2023, still outstripping expected overall inflation. The rate will then pick up to 3.5% in 2024.
Asked what would happen to affordability over the next 2-3 years, 11 of 14 respondents to an additional question said it would worsen as predicted interest rate rises will increase mortgage repayments, making them a bigger chunk of borrowers' earnings.
"Increased appetite for space and reduced commuting costs with increased remote working will increase the amount households dedicate to mortgage repayments," said Andrew Wishart at Capital Economics.
The Bank of England will be the first major central bank to raise interest rates, possibly as soon as this month, a November Reuters poll predicted.
While borrowing costs are expected to rise slowly, when asked what would have the biggest impact on housing market activity next year five respondents said interest rate increases.
However, interest rates would need to reach around 1.0% to significantly slow housing market activity, according to the median answer to an additional question, much higher than the current 0.10% and a level not expected by economists in the separate Reuters poll until 2023.
Seven experts said the lack of supply - something which has long been a problem in Britain and other countries - would be the main driver of activity. Three said a desire for more living space and one said higher inflation.
"Limited supply has supported price growth but should gradually improve now the respective stamp duty (property tax) holidays have ended. The desire for more space will outlast the pandemic," said Chris Druce at Knight Frank.
Britain's top two housebuilders, Barratt Developments (LON:BDEV) Plc and Persimmon (LON:PSN) Plc, have said strong demand would continue and stuck to their annual projections for homes completed in spite of persistent supply chain issues caused by the pandemic.
In London, a magnet for foreign investors before the pandemic struck, prices were expected to rise more moderately than nationwide, increasing 3.0% this year, 2.4% in 2022 and 3.0% in 2023.
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"The recovery is likely to be drawn out over the coming year though in the mid-term the allure of the capital will return stronger growth," Harvir Dhillon at Experian said.
Reuters poll graphics on the UK housing market outlook: https://fingfx.thomsonreuters.com/gfx/polling/akpezogzmvr/UK%20housing%20poll.png
Written By: Reuters
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