2016 is over and what a year it was. Brexit, Trump, a plummeting pound, Southern Rail strikes and celebrities dying left right and centre. Few of us can remember a year with so many surprises.
So how did the UK housing market cope during this 12 months of turmoil?
Surprisingly well it turns out.
At 4.5% growth, the UK housing market ended 2016 at the same level as 2015.
The only sector to suffer was the top-end of the London market, which saw prices drop by 6.9%.
So what is in store for 2017? Here we will assess what some experts are predicting for the housing sector in the year that Article 50 is intended be triggered. Will it be economic Armageddon or business as usual?
Housing price growth predicted to slow down
According to Britain’s biggest mortgage lender, Halifax, the Royal Institution of Chartered Surveyors and Savills, prices will rise this year, but only between one to three percent.
However, Savills, one of the country’s largest real estate agents admitted that, “rarely, if ever, has economic forecasting been less certain.” The firm also predicts that prices in the South East will rise 17% over the next five years.
According to Rightmove, UK house prices will rise by an average of two percent this year.
“Although the market has built up some momentum, which we expect to continue into next year, the uncertainty plus increasingly stretched affordability will continue to weigh on house prices, so our forecast for 2017 is for modest price growth. We forecast Inner London to remain weak and prices to fall by a further five per cent in 2017, as its price bubble continues to deflate,” says Rightmove’s Miles Shipside.
So it appears that all the big players in the market are being very conservative in their predictions for growth and fully expect the battering of both business and consumer confidence following the triggering of Article 50 (which will formally begin our exit from the EU) to have an effect on property values.
But how much faith can we put in predictions?
Economists had a Michael Fish moment in 2016
Last week, Andy Haldane, the Bank of England’s chief economist compared the failure of economists to predict the 2008 financial crash and their overstated fears of imminent economic doom following Brexit in 2016, with the famously inaccurate forecast by BBC weatherman Michael Fish, ahead of the UK’s great storm of 1987.
Mr Haldane blames the failures on economic models to cope with “irrational behaviour” in the modern era and admitted the profession needed to adapt to regain the trust of the public and politicians.
According to Markit / CIPS UK Services Purchasing Managing Index (PMI) figures released last week, every single sector of the British economy is doing better than expected and defied economist predictions of what would happen if the British people voted for Brexit.
The manufacturing sector’s PMI rose to 56.1 in December from 53.6 in November (anything above 50 signals growth). Construction also did well, hitting growth for the fourth consecutive month.
So the economy is doing better than expected but what about interest rates?
Interest rate predictions
Bank rate was cut in August 2016 to 0.25 per cent. It was already at a record low level of 0.5 per cent.
In December 2016, the Monetary Policy Committee voted to leave interest rates at their lowest ever rate, amid economic uncertainty over Brexit.
At the same time the Federal Reserve raised the US interest rate by 0.25% following the strength shown in the American economy.
However, inflation, which is set to rise due to the pound’s drop in value, could put pressure on the Bank of England to raise rates. A higher interest rate combined with inflation may squeeze living standards to uncomfortable levels for some, but it is good news for investors and pension holders who have lived with little return on their savings for the past seven years.
What is in store for the property market in 2017? It seems no one is entirely sure. But what we can say is for now, Britain’s economy and housing prices in the South remain generally robust.
Although we are likely to be in for another rocky year, there is a strong possibility that the country will end 2017 in the same positive position it began.
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