UK house prices and the number of sale transactions will fail to rebound “regardless of the Brexit outcome”, according to a leading economics group in London.
Consultancy Capital Economics said it sees prices rising at best by 2% a year, even on a benign outcome to Brexit because UK house prices are already at the top end of valuations and the economic growth will likely slow.
UK rents are likely to continue to rise, however, it predicts.
“We don’t expect a rebound in either house prices or transactions in 2019. Rather, there is hope of a modest improvement in housing market activity in both 2020 and 2021, assuming a no-deal Brexit is avoided in October.
"That said, house price growth is unlikely to accelerate anytime soon, although we do think the outlook for rental growth is improving,” Capital Economics forecasts.
“House prices are very high relative to incomes, in part reflecting the low level of mortgage interest rates.
"Looking ahead, rising mortgage interest rates over the next few years are unlikely to cause payment difficulties among borrowers.
In the event of a no-deal Brexit, rate cuts could lead to a fresh decline in mortgage interest rates, which would help to prop up demand.
It predicts London’s house prices and prices in the south-east will continue to decline.
“But across the rest of the country, we expect house prices to grow at between 1% and 4% per year out to 2021, with the North of England and Northern Ireland seeing some of the strongest gains,” it said.
The prospects for a no-deal Brexit at Halloween have risen significantly after both contenders in the Conservative Party leadership contest committed to ending UK’s membership by the end of October, one way or the another.
Boris Johnson is expected to win the contest of Tory members when the result is announced later today.
Sterling, which has slumped in recent weeks on the hard-line rhetoric of Mr Johnson, was little changed against the dollar and traded at just below 89.9p against the euro.
“Having spent the past few weeks steadily pricing in a ‘no deal’ situation, GBP-USD is relatively calm ahead of the announcement of the winner of the race to succeed Theresa May,” said Chris Beauchamp, chief market analyst at online broker IG.
“But the uncertainty continues to hit UK assets, and so long as the government seems determined to push no deal as a viable option then both sterling and the Ftse look vulnerable to more downside.”
