House prices to fall by 1% in 2017, says Countrywide
House prices are expected to fall by an average of 1% in 2017 but recover in 2018 with Brexit the reason for the slowdown, according to Countrywide.
The national estate agent said central London would be most affected but the economic uncertainty caused by Brexit will impact on all regions.
It has revised its forecast for 2016 UK house price growth from 4.5% before the Brexit vote in June, down to 2.5%, followed by a 1% fall in 2017 before prices recover and house price growth resumes at 2% in 2018.
Countrywide said that Brexit had unsettled the housing market but the overall driver of house prices would be the performance of the economy which could hit consumer confidence, household incomes and the labour market. It expects the economy to decline in the next year but begin to recover by autumn 2017.
Countrywide said the risk “will be dominated by the UK’s ability to leave the EU in an orderly fashion and maintain its trade links,” and that it is this uncertainty of how Brexit will play out that informs its latest forecast.
In its report, Countrywide said: “If trade negotiations progress well, the economic slowdown may be very brief and housing markets will be less affected, although the likelihood of an increase in interest rates in such a scenario is heightened.”
It expects the decline to be temporary and low levels of supply will stop house prices from falling too far.
In its analysis, Countrywide looked at a range of economic factors which could be affected by Brexit. It said the increase in stamp duty was a contributing factor to the price falls expected next year, particularly for the top end of the property market.
Countrywide expects London prices to grow by 3.5% in 2016, fall by 1.25% in 2017 and then rise by 2% in 2018. Prime property prices in the capital will be hit even harder, down by 6% this year, level in 2017 and up by 4% in 2018.
However, the report stressed that there was a higher chance than normal that its forecasts could change because negotiating the terms of Brexit was an “extraordinary” event.
Countrywide chief economist Fionnuala Earley, said: "Forecasts in the current environment are trickier than ever as the vote to leave the EU has thrown up many risks.
"Our central view is that the economy will avoid a hard landing, which is good news for housing markets.
"However, the weaker prospects for confidence, household incomes and the labour market mean that we do expect some modest falls in house prices before they return to positive growth towards the end of 2017 and into 2018."
The report says low supply levels will stop house prices from falling dramatically and this will also support the rental market for landlords and buy-to-let investors.
"There are supports to prices on the supply side from the continuing mismatch of supply," added Earley.
Low interest rates are also expected to help keep mortgage costs stable as they prove attractive to potential homebuyers.
"On the demand side, ultra-low interest rates and the significant discounts available to overseas buyers resulting from the fall in sterling will help to support prices too," Earley said.
International buyers could contribute to the recovery, taking advantage of the fall in the value of sterling to lower the cost of investing in UK property.