Edition 7 – January 2018

Economic outlook

In late November, the government’s Office for Budget Responsibility (OBR) downgraded is growth forecasts, predicting the UK economy will grow by 1.4% in 2018, 1.3% in 2019 and 1.5% in 2021.

In its UK Economic Outlook published in November, PWC reached the same conclusion for 2018, citing slower consumer spending growth and ‘the drag on business investment from ongoing political and economic uncertainty relating to the outcome of the Brexit negotiations’.

Inflation is widely expected to reach 2.7% in 2018, placing further strain in household budgets. Borrowing has filled the gap until now, but PWC feel that, as interest rates start to rise, albeit slowly, the effects of inflation will be felt more acutely. Defaults on unsecured borrowing are increasing, the Bank of England has said, so lenders are also restricting access to loans and credit cards.

Property Market

The RICS UK Residential Market Survey for December, published on 18^th January was titled ‘Headline activity indictors remain subdued for now’. While their respondents’ view of the national price balance edged up into positive territory, they reported that agreed sales were falling. Respondents were more upbeat about the twelve month outlook for both sales and prices.

A Reuters poll of 28 housing market specialists, published in December, predicted that property prices nationally will rise 1.3% in 2018, continuing to run below the rate of inflation. The same poll forecast increases of 2.3% and 3.0% in 2019 and 2020 respectively. In London, prices are expected to fall 0.3% in 2018.  Other forecasts reach similar conclusions.

There are differing views about whether new homes will be able to meet the government’s target of 300,000 a year. Nearly all of Reuters’ experts believe that it will not be met. It is possible that even the 250,000 a year the building industry say is needed to meet pent up demand. So new building is unlikely to be sufficient to have a cooling effect on prices.

In December, RICS asked an additional question about the expected impact of the Stamp Duty cut for first time buyers. Two-thirds thought it would have little consequence, while 12% thought it would drive higher activity. Those in London were more likely to expect an impact from the change than others elsewhere in the country. 20 of Reuters’ experts said it would increase house prices.

Mortgage market

The recent rise in the Bank of England base rate has had little impact on homeowners because of the prevalence of fixed-rate mortgages. Competition between lenders is acute, and this has also helped shelter buyers from the increase. Arrears and repossessions rates are also at historically low levels, which mortgage brokers John Charcol say has allowed lenders to accept lower margins on new lending.

UK monthly house price statistics, Nationwide