UK house prices:price falls are predicted next year, but recovery will start in 2018

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House price growth has fallen in recent months, but is expected to start rising again by 2018, according to the latest three-year housing forecast by Countrywide.

London and the South are predicted to experience the biggest falls, with rises slowing to 3.5 per cent in 2016, from 10.8 per cent in 2015, according to the report by Britain's largest estate and lettings agents group.

Prices are actually expected to fall by one per cent in 2017, but are tipped to increase by two per cent during 2018.

The findings are similar to those of the Centre for Economics and Business Research, whose senior economist Nina Skero says: “Although Brexit has certainly sent shockwaves, CEBR expects the housing market to slow down, but not plummet.”

The average asking price of a home in the capital is now £472,204, according to the latest ONS House Price Index.

Nationwide, house prices are still less than half the capital's average, at £213,927, and are also expected to be affected, but not by as much.

Price growth in the North and the Midlands, for example, is set to fall by 0.5 per cent in 2016 and prices themselves are expected to fall by 0.25 per cent in 2017, as uncertainty surrounding the EU affects investment and labour markets.

However, prices in those regions are also expected to pick up by two per cent during 2018. Although 2017 might sound like a tough year for homeowners, it merely means that values will return to levels recorded at the beginning of this year.

"Forecasts in the current environment are trickier than ever, as the vote to leave the EU has thrown up many risks," says Fionnuala Earley, Countrywide's chief economist.

"Our central view is that the economy will avoid a hard landing, which is good news for housing markets."

The biggest factors affecting the property market
Brexit is undoubtedly the biggest cause of uncertainty - June's vote to leave the EU immediately unsettled the housing market and data on the ratio of asking prices to achieved prices shows that buyers are already using it to negotiate more fiercely than before.

The terms for leaving the European Union are still to be worked out, and despite favourable trade deals being in every nation's interests, financial analysts largely predict that Britain's economy is likely to weaken once Article 50 has been invoked.

A weakened economy would affect the labour market, household incomes and consumer confidence - and stall house price growth.

After several years of double-digit growth, house price stabilisation is seen as a natural correction of the market. This was likely to occur without Brexit, because such large price rises have weakened affordability.

Others factors include the Bank of England cutting interest rates to 0.25 per cent this month, keeping mortgages at record lows and encouraging people to buy.

Also, demand for homes is still outstripping supply, especially in London's first-time buyer and second-stepper markets, which helps to keep prices competitive.

What it means for first-time buyers
Raising the deposit is still the biggest barrier for first-time buyers, and the availability of higher loan-to-value mortgages will be a key factor in people getting on to the property ladder.

"There's nothing to stop you if you're in a position to buy, because house price fluctuations are modest," says Earley. "But don't try to rush into a purchase before prices increase again. Buying is a longer term decision, so you need to think about your personal circumstances - can you take on a mortgage and still have a life? Are your job prospects stable or changing?"

If you're looking for a first-time home and think that you may want to move on in a couple of years, Earley says buying near good transport links will always make a property more appealing to future buyers. 

What this means for second steppers
The advice is similar for second steppers - buy a property you want to live in, not purely for investment gain.

"Be aware it might take a little bit longer to sell your current property and there might be more price negotiation than expected - but then you can negotiate, too," says Earley. "Everybody is in a similar position if prices fall."

Effect on the prime central London market
Prime central London is expected to be hardest hit, with prices predicted to fall by six per cent next year. But recovery is expected to begin in 2017, with positive growth of four per cent by 2018.

Prices in the prime housing market have been falling since 2015, due in large part to stamp duty increases and uncertainty surrounding the general election in May 2015.

However, the fall in sterling provides a cushion against perceived risks and makes multi-million pound homes in the capital more appealing for overseas buyers, who still see London property as a stable investment.

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