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British house prices to rise as UK-EU uncertainty fades – Reuters poll

British house prices will continue their upward climb in coming years as fears of a messy split from the European Union have waned and expectations for ongoing loose monetary policy supports demand, a Reuters poll found.

Nationally, prices will rise 2.0% this year, 2.8% next year and 3.1% in 2022, medians in the Feb. 17-28 poll of 26 housing market experts showed, much steeper than predicted in a November survey.

“It is anticipated that some of the uncertainty that has held back the UK housing market over the past year will begin to lift with the result that we see some modest pickup in house price inflation,” said Peter Dixon at Commerzbank.

Prime Minister Boris Johnson won a decisive victory in an election in December, strengthening his position, and all Reuters economic polls since a narrow majority of Britons voted to leave the EU in June 2016 have said the most likely future trading regime will be an EU-UK free-trade agreement.

But the prospect of no deal being reached by the end of 2020 will weigh on the property market, 19 of 25 respondents to an extra question said.

“The housing market doesn’t respond well to uncertainty. People do nothing rather than something, which brings the market to a standstill,” said property market consultant Henry Pryor.

Growth has been tepid in recent quarters and, with the coronavirus outbreak threatening to derail the global economy, the Bank of England is not expected to increase borrowing costs until 2022 at the earliest, easing the burden on buyers with a mortgage.

Fears the coronavirus will stoke the next global recession have raised expectations for a coordinated policy response by central banks so UK interest rates could fall further.

However, homes are still seen as slightly overvalued. When asked to describe the level of house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 6.

In London, the median rating was 8. With prices set to rise 2.0% this year and next, there will not be any respite for people looking to buy in the capital.

The average asking price for a home in London was around 630,000 pounds ($805,203) last month, property website Rightmove said, almost six times the average UK annual salary, putting dreams of getting on the property ladder out of reach for many.

Still, British lenders approved the highest number of mortgages for house purchase in nearly four years in January, Bank of England figures showed on Monday, confirming a pick-up in consumer demand at the start of 2020.

When asked what was most likely for London housing market activity over the coming year, around two-thirds of respondents replied by saying an acceleration rather than a prolonged period of sub-par activity followed by a recovery or a slowdown.

It was a similar split when asked the same question about activity nationally.

“While the direction of travel in the near-term is clear, the size of that gain is not,” said Hansen Lu at Capital Economics.

“House prices are still high relative to incomes, while mortgage interest rates are unlikely to fall further. That means the housing market is still constrained by limited deposit availability, loan-to-income limits and a lack of homes for sale.”

Polling by Tushar Goenka and Nagamani Lingappa

Source: UK Reuters

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London slump drags UK house price growth to more than six-year low

British house prices rose at the weakest rate in six-and-a-half years in February, dragged down by London’s biggest price slump in a decade as Brexit uncertainty sent chills through the property market.

Official data also showed Britain’s consumer price inflation unexpectedly held just below the Bank of England’s 2 percent target in March, offering relief to consumers whose spending has helped Britain’s economy through the Brexit crisis.

House prices were just 0.6 percent higher in February than a year ago, slowing sharply from a 1.7 percent annual rise in January, the Office for National Statistics (ONS) said.

In London, house prices were down by 3.8 percent — the biggest drop since mid-2009. The malaise in the capital spread to the south-east of England, where prices fell for the first time since 2011.

Other surveys have shown Brexit to be a major drag on the property market in the capital, which is sensitive to flows of migrant workers from the European Union. A surge in prices in London in previous years has also stretched affordability.

House prices in London are now 6 percent below their mid-2017 peak, albeit a smaller contraction than an 18 percent decline during the financial crisis.

“It is possible that the avoidance of a ‘no deal’ Brexit at the end of March could provide a modest boost to the housing market through easing some of the immediate uncertainty and concerns,” said economist Howard Archer from consultancy EY ITEM Club.

“However, we suspect it is more probable that with Brexit most likely being delayed until Oct. 31, prolonged uncertainty will weigh down on the housing market and hamper activity.”


Separately, the ONS said consumer prices rose at an annual rate of 1.9 percent in March, the same rate as in February. A Reuters poll of economists had pointed to a rate of 2.0 percent.

Sterling slipped against the U.S. dollar and the euro on the figures, while British government bond prices rose slightly.

Rising motor fuel prices were offset by falling food prices and computer game prices rising more slowly than they did a year ago, the ONS said.

Looking ahead, improving wage growth and poor productivity in Britain’s economy are likely to push inflation above the BoE’s 2 percent target by the end of 2019, said economist Andrew Wishart from consultancy Capital Economics.

“Nonetheless, with another Brexit crunch point looming in October and growth likely to be modest this year, we doubt the (Bank of England) will press ahead with another interest rate hike until next summer,” Wishart added.

BoE policymakers have said they want to see firm evidence of domestic inflation pressure – chiefly from rising wages – building before they vote to raise rates.

They will likely be reassured by Wednesday’s data that showed costs faced by factories for materials and energy – which eventually feed through to consumer prices – rose more slowly than expected in March.

Editing by Andrew Cawthorne

Source: UK Reuters