House price growth in the UK will likely come to a halt over the course of next year as the number of transactions falls, the RICS housing forecast for 2018 predicts.
The RICS UK market survey has recently shown buyer enquires stalling, sales volumes stagnating and sentiment turning more cautious.
Tarrant Parsons, RICS economist, said: “Following a pretty lacklustre finish to 2017, the indications are that momentum across the housing market will be lacking as 2018 gets underway.
“With several of the forces currently weighing on activity set to persist over the near term, it’s difficult to envisage a material step-up in impetus during the next twelve months.
“However, the fundamentals are not much changed from the end of 2017, so levels of activity should soften only marginally when compared to the year just ending.”
Parsons added: “A real lack of stock coming onto the market remains one of the biggest challenges, while affordability constraints are increasingly curbing demand in some parts. Given these dynamics, price growth may fade to produce a virtually flat outturn for 2018.”
“That said, despite the recent interest rate hike, mortgage rates are set to remain very favourable, with the prospect of further rises seemingly minimal over the coming year. Alongside this, government schemes such as help to buy should continue to provide some support to sales activity.”
Looking at sales activity, the market looks unlikely to breach 1.2 million sales in 2018. Political and economic uncertainty, the lack of stock, stretched affordability, tax changes and interest rate rises will all provide a hindrance.
Sales volumes across the national housing market look likely to total just over 1.2 million in 2017, which is almost identical to 2016.
The flat national prediction brought about by growth in some regions is counterbalanced by price decline in others.
The forecast also predicts rents rising by 1% and stamp duty changes having minimal impact on activity despite the fact they may improve affordability for first-time buyers.
Lewis Johnston, RICS Parliamentary affairs manager, added: “2017 was meant to be the year of a government step-change in housing policy, but it seems we’ll have to wait a little while longer for anything truly transformative to drive up supply.
“While there have been some policies, such as the recognition of the role of councils in building homes which RICS have long called for, and the package of reforms to support SME builders that should make a change in the market, many of these measures won’t come into effect until the mid-2020s and as our 2018 forecast indicates, they don’t add up to the kind of resolute, large-scale supply strategy we need.”
If the current rate of growth of housebuilding were to be maintained, it would take just three more years to hit the 300,000 mark.
However, nearly 18,000 of these additional dwellings came from office conversions under permitted development rights.
RICS said it seems improbable that these conversions can continue to make such a hefty contribution (8%) indefinitely.
Housing delivery across the country is dominated by the large private sector housebuilders and expecting them alone to make up the deficit in supply is unrealistic.
Johnson added: “If they are to fundamentally shift the narrative on housing in 2018, ministers need to both introduce some new ideas and be much bolder on the positive but tentative moves they’ve made in 2017.
“The lifting of the borrowing cap for councils should be brought forward, alongside a much larger package of measures for direct commissioning, and in addition to Oliver Letwin’s review of unused planning permission, there needs to be a much broader rethink of the planning system.”