Greater London house price inflation will turn negative in early 2017 as the market corrects itself from the hectic start to 2016, Alan Clarke, head of European fixed income strategy at Scotiabank, has predicted.
The Office for National Statistics House Price Index put annual London inflation at 13% – but Clarke thinks the days of heady increases in the capital are nearing an end.
He said: “London ONS house price inflation should stay in double digits for another month or two, but plunge into negative territory by early next year and I don’t think they will go back up to double digits.
“Demand for properties has slumped and I suspect in the London area in particular that has been due to a frontloading of activity to beat the stamp duty increase on buy-to-let properties and we are now in a payback period.
“We’re also seeing the same in supply, with new instructions coming down.”
He added: “It may also reflect us holding back given the uncertainties on Brexit.”
Clarke reckoned the sweet spot for house price inflation is at nominal GDP, or around 4-5%.
He said: “Mortgage rates are still bolted to the floor and gilt yields are very low – the domestic fundamentals are still good.
“But they’re not fantastic enough – wage inflation has stopped.”
The RICS UK Residential Market Survey for May, which was released today, also found that more members expect prices to fall than rise in the next three months.
In Central London 35% more RICS professionals reported prices falling rather than rising in the past month.
However its chief economist Simon Rubinsoh felt falling confidence was a short-term dip caused by the EU referendum rather than a long-term trend.