London house prices to fall this year and next, 1-in-3 chance of a crash

House prices in London’s overvalued market will fall this year and next, a Reuters poll of analysts and experts predicted, and will crash if Britain fails to reach a deal ahead of its departure from the European Union.

The quarterly poll of around 30 housing market specialists, taken in the past week, said house prices in the capital – where foreign investors have previously fuelled skyrocketing prices – will fall 1.6 percent this year and 0.1 percent next.

Tony Williams at property consultancy Building Value said:

“Central London is tanking because the traditional international buyers are staying away – and the quantum of buyers is falling. A disorderly Brexit will exacerbate this trend.”

Uncertainty over how Brexit negations pan out has already spooked foreign investors. When asked what effect a disorderly departure would have on London prices, responses ranged from “short-term fall” to “damaging” to “disaster”.

Ray Boulger at mortgage broker John Charcol said:

“In the short term the additional uncertainty will disproportionately affect London, causing the value of some properties, particularly high value properties, to fall further.”

Britain is due to leave the EU in March and sterling fell to a near one-year low against the euro on Tuesday amid no-deal angst. A weaker currency should make UK houses more attractive to foreign buyers but Brexit uncertainty is keeping them away.

When asked about the likelihood of a significant correction in London’s housing market before the end of 2019 the specialists gave a relatively high median of 29 percent. The highest was 75 percent.

But that might not be a bad thing – certainly for first-time buyers.

When asked to rate the level of London house prices on a scale of one to ten, where one is extremely cheap and ten extremely expensive, the median response was nine. Nationally they were rated seven.

Hansen Lu at Capital Economics said:

“The weight of evidence suggests that housing is overvalued once more.”

In August the average asking price for a home nationally was 301,973 pounds and in London a whopping 609,205 pounds, according to property website Rightmove, putting home ownership out of the reach of many – despite historically low borrowing costs.

The Bank of England pushed interest rates above their financial crisis lows this month but signalled it was in no hurry to raise them further. It will add another 25 basis points in the second quarter of next year, taking Bank Rate to 1.0 percent, another Reuters poll predicted.

So with mortgage rates staying low house prices are expected to increase nationally by 2.0 percent this year and next – slower than inflation – and then 2.3 percent in 2020.

Andrew Brigden at Fathom Consulting said:

“We see little upward or downward pressure on house prices at current near-zero interest rates. However, risks lie substantially to the downside.

“Were interest rates to return to pre-crisis levels or higher, which may prove necessary if there were a sharp fall in sterling after a General Election, for example, then house prices could fall by around 40 percent.”

Kindly shared by Reuters UK