Ray Boulger's 2017 Housing Market Predictions

Posted on 30 December 2016 by Ray Boulger

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Whatever the next year brings one thing that is guaranteed is the fact that the UK housing market will remain a hot topic in 2017. With more talk around the lack of homes being built, Brexit fears or the government increasingly grabbing the buy to let market by the horns, one thing that you can always expect is the housing market's ability to throw up surprises and show resilience in ways you'd never expect.

So looking ahead our expert, Ray Boulger, predicts what could have happened in the UK housing market this time next year:

Housing Transactions

Prediction 1,150,000 by the end of 2017  (the forecast for 2016 is 1,226,000 v 1,229,580 in 2015)

Although housing transactions have recovered by over 40% from the 2009 trough of 859,000 they are still well below the 1.6m plus seen in 2006 and 2007. In 2017 we predict a fall of about 6% in 2017, partly due to the sharp slowdown in Buy to Let activity following the income tax and stamp duty changes, but also reflecting the increase of 80,000 transactions in March 2016 (171,370 v 91,490 in March 2015) as investors and second home buyers rushed to beat the 3% stamp duty surcharge.

Several factors are continuing to keep housing transactions below pre credit crunch levels, despite an improvement in mortgage availability and the UK population having increased significantly since 2007:

  • The exclusion from the market, due to a lack of deposit, of potential FTBs, even though their monthly mortgage payments would in many cases be no more than their rent.
  •  Stricter mortgage regulation, with new rules from both the Financial Conduct Authority and the Financial Policy Committee.
  • An increasing trend at the more expensive end of the market, as a result of high levels of stamp duty, to extend rather than move, thus impacting the ability of chains to form lower down the market as well as reducing the number of high level transactions.

House Price Growth

Prediction: a slight increase overall of +1%

Although housing transactions have recovered by over 40% from the 2009 low of 859,000 they are still well below the 1.6m plus seen in 2006 and 2007. In 2017 we predict a fall of about 6% in 2017, partly due to the sharp slowdown in Buy to Let activity following the income tax and stamp duty changes, but also reflecting the increase of 80,000 transactions in March 2016 (171,370 v 91,490 in March 2015) as investors and second home buyers rushed to beat the 3% stamp duty surcharge.

Bank Rate

Prediction: static at 0.25% at the end of 2017

Bank Rate is unlikely to change in 2017 and, just as importantly for mortgage rates, long term rates will remain low a result of the uncertainty caused by Brexit, despite recent increases in US rates. Mortgages will therefore remain very affordable in terms of monthly payments and remortgaging activity will continue to increase as borrowers lock into fixed rates that are still close to all time lows.

Domestic Spending

One of the factors helping domestic spending is the increased level of remortgaging over the last year. As 2016 saw the lowest mortgage rates ever, nearly every remortgage will have been onto a lower rate and hence put more spending power into the pockets of those borrowers.

The Buy to Let Market

The rush to beat the 3% stamp duty surcharge distorted lending in the first quarter of 2016, particularly March, when gross lending was over £10bn (+62%) higher than the same month in 2015. The combination of increased income tax and a significantly higher stress test for the rental cover affordability calculation imposed by the PRA will result in BTL taking a significantly smaller share of the market in 2017, down to about 13.5%, compared to 17.7% in 2015.

Lending

For residential mortgages a small reduction in the number of housing transactions and flat house prices will result in a marginal fall in mortgage lending for purchases but this will be more than compensated for by a further increase in remortgage activity. However Buy to Let lending will fall sharply, especially for purchases. I expect BTL lending to fall by about £10bn, resulting in an overall small fall in total gross mortgage lending to £240bn, compared to an anticipated £245bn in 2016, which will be an increase of 11% over 2015.

What are your predictions for 2017, do you agree or disagree with Ray? Leave your comments below or tweet us @JohnCharcol with the hashtag #JCPredictions2017 

Categories: Property market, Bank of England, Buy to let, Mortgages, House and home, Interest rates

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