UK house prices ‘to drop in 2017’ over Brexit

Irish house prices will continue to increase over the next two years even as UK prices start to slide this year and through 2017 because of the British decision to leave the EU, according to S&P Global ratings.

Projecting home prices for 10 European countries, the major report starkly shows the UK as the only European country where house prices will fall next year.

The ratings firm said that the Brexit fallout will spread to most areas of the UK economy, including its housing market.

S&P (formerly Standard and Poor’s) said UK prices will start to fall back sharply later this year and drop next year, by 2%. In 2018, it sees only a modest pickup in prices of 2.5% — a rate which is only slightly above the UK rate of inflation.

UK house-price growth which had surged up to 11.7% in 2014 had slowed to 5.6% last year.

Amid deep uncertainties facing the UK economy following its Brexit decision, S&P said “much will depend for example on how good an exit deal the UK will get but also how well the UK government will manage uncertainty after triggering the exit procedure.

“It will also depend on how decisively both the Bank of England and ECB — which has no interest in too strong a euro — will continue to tackle threats to financial stability should such threats emerge,” it said.

It believes supply shortages and a weaker pound may offset the risks of “substantial” price falls in Britain.

The UK construction industry will likely cut back in building new homes, while many rich investors propping up the London property market are from outside the EU and “will remain largely unaffected by an eventual Brexit” and not sell up.

S&P said Irish house prices will rise 6% this year, but slow to 2.5% in 2017 as it forecasts “the vote of the UK to leave the EU only dampening, but not derailing, the economic recovery underway in Ireland”.

It said that the “persistent housing shortages” will support Irish house prices for some time, saying that a significant rise in house completions in recent years is not what it appears following the collapse of the house- building industry here.

“The main structural reason for the housing shortage is that the housebuilding industry is still suffering from the housing crash eight years ago, and although now on a firm path to recovery it has not yet grown sufficiently large and resilient to provide enough homes to market,” says the report.

Irish house prices will grow 3% in 2018, it projects.

Apart from the UK, prices in most other parts of Europe will rise because of low mortgage costs. In 2017, prices will rise 4% in Portugal, while German prices after posting a 7% increase this year will surge by 6%.

It said that Munich and Hamburg have posted very large home price increases of over 50%, as living standards increases on the strong economy and housing shortages push up prices.

Refugee inflows are pushing up demand for lower-price housing, while low mortgage interest rates are “incentivising Germans to become property owners”.

However, dangers of any overheating in the German property market are offset by borrowers needing 30% deposits and loan rates which are fixed for 10 years.

S&P projects home price in France will rise by 2% next year but be flat in 2018.