Bank of England says property prices could fall 1.2% this year

Property prices in the UK could fall by 1.2% this year with Brexit and high levels of stamp duty affecting the housing markets but it could pick up once the Brexit situation is sorted out.

Overall, the property market has been weak since the referendum result to leave the European Union in 2016, the Bank says in its latest inflation report and since then Brexit uncertainty, as well as other factors, had taken their toll on house prices.

Other constraints include the extra stamp duty on second homes which have hit the buy t let market. Indeed, buy to let mortgage completions were around 40% lower in 2018 than in 2015.

It also suggests that high moving costs have added to the wait and see attitude which is affecting both buyers and sellers and adds that even a rise in new homes being built is affecting the market as in some parts of the country, particularly the South of England, there is an excess supply which has led to a widening gap between asking and sold prices.

The Bank report suggests that as the headwinds from uncertainty dissipate and wage growth continues then the demand from buyers could pick up. But it does not give an idea of when this might happen and adds that the current uncertainty could continue for some time.

‘Against a backdrop of Brexit uncertainty, the Bank of England is clearly bearish on the UK property market. The British public, by contrast, is proving considerably less bearish, with a sharp pick-up in activity levels during the past couple of months,’ said Andrew Montlake, director of the UK wide mortgage broker Coreco.

‘One key driver of increased activity levels, as the Bank of England highlights, is the extraordinary level of competition between lenders. This is particularly the case at higher LTVs, which is drawing more first time buyers than ever into the market,’ he pointed out.

‘Not only are products priced much more competitively, but we have seen a relaxation in loan criteria. Lenders are being more accommodating with their criteria and this is making affordability less of an issue compared to a year ago. Loans that might have been rejected a few months ago are now getting across the line as lenders compete to get money into the market,’ he added.

According to Lucy Pendleton, director of independent estate agents James Pendleton, the housing market has been labouring under a slump in transactions that has exacerbated affordability problems in many areas as lack of demand has kept prices artificially high.

‘What the UK needs is for transaction levels to return to pre-crisis levels because that’s what will impose fair value on more of the markets that have been seizing up over the last few years,’ she said.

‘The regions have also been seeing incredibly strong performances lately even while prices in London have been falling. The capital normally leads the way so, if these forecasts are borne out, this is the rest of the country playing catch up as it has always tended to do. In the long run a correction in prices is probably what our housing market needs,’ she added.

Conor Murphy, chief executive officer of Smartr365, believes that remortgage activity could spike in coming months as borrowers seek to secure long term fixed rate deals, and brokers need to be prepared for the challenges increased demand could bring.

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