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Stable, but modest housing market expected in 2018

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Halifax expects annual house price growth to stay low and in the range of 0-3% in 2018, according to its UK Housing Market Outlook for 2018.

This will be driven by a combination of a shortage of properties for sale,  and continued low levels of house building, unemployment and interest rate environment, said Halifax.

Over 2017, property price growth fell from the 10% in March 2016 to a low of 2.1% in July this year, with a recent recovery to around 4%.

“Both demand and supply pressures in the market have altered little over the course of 2017,” said Halifax, which is likely to keep prices at the same level this year.

The stamp duty changes announced in the budget are expected to provide boosts to first-time buyer (FTB) demand – indeed, the number of FTBs getting on the housing ladder exceeded 150,000 in 2017 for the third time in four years – a level of momentum not seen since before the financial crisis.

However, while October completions rose to 105,000 – the highest recorded in 18 months, and total house sales in 2017 are expected to total around 1.23m – mortgage approvals and newly agreed sales fell.

Households are also in a financial squeeze – owing to inflation outstripping wage growth – alongside the broader economic uncertainty.

“Even with inflation expected to fall next year, household budgets are likely to remain strained in the absence of accelerating wage growth,” said Halifax managing director Russell Galley.

In the year to June 2017, there were 153,330 new builds completed – an 11% increase from June 2016 – with the government pledging to build 300,000 additional net new homes per year by the mid-2020s.

Nevertheless, price fluctuations are expected by be minimal, as “higher levels of housebuilding should help bring supply and demand into better balance and contain the upward pressure on prices over the medium and longer terms,” said the bank.

Galley added: “There is little reason to expect any fundamental shift in the key housing market drivers in the immediate future.”

The regional picture

Cutting against the grain of the past decade, price momentum was strongest in Northern England, but weaker in the South East and London.

The North saw the highest annualised growth in Q3 2017, at 9.1%, followed by the East Midlands and the North West. But London was the weakest at 2.6%, down from a peak of 21% in Q1 2016, while the South East grew at a slower pace than the UK as a whole for the first time in three and a half years.

Halifax noted that with average prices in London still 8.8 times the annual average earnings,constrained affordability means price growth will stay low.

Galley said: “Outside London, there are few signs of significant stresses and imbalances at present, limiting the risk of a sharp slowdown elsewhere.”

He continued: “UK house prices in general are likely to be supported, seeing modest growth in 2018, through the combination of a shortage of properties for sale, continued low levels of house building, low unemployment levels and finally, good levels of affordability due to the low interest rate environment.”

“A further rate rise is not seen as imminent and we may not see one until the latter part of 2018, if at all,” he added.

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