House price growth to remain moderate across UK with positive growth in the West Midlands

PwC’s latest UK Economic Outlook projects the West Midlands will see house price growth of 4.8% in 2018, 1.8% above the forecast UK average.

  • Average West Midlands house price estimated to rise from £185,000 in 2017 to around £225,000 by 2022
  • House prices in London are projected to fall in the short-term, down by 2% in 2018 from 2017
  • Fixed rate mortgages  accounted for 94% of new mortgages in 2017 compared to only around 50% in 2010
  • Only around 11% of UK households would be immediately affected if mortgage interest rates rose, compared to around 24% in 2012
  • New analysis suggests link between lack of new housing supply, relative to population growth, and local house price growth since 2011 across England

Annual UK house price growth is projected to slow to around 3% in 2018 and is likely to remain around this level until 2025, according to new analysis from PwC.

The average UK house price is estimated to rise from £221,000 in 2017 to around £285,000 by 2025 according to PwC’s projections. Price growth at this pace means the ratio of house prices to earnings is likely to remain broadly stable, but still at high levels by historical standards.

In London, however, the average house price could drop by nearly 2% in 2018 compared to last year and house price inflation could continue to be negative in 2019.

Matthew Hammond, PwC’s Midlands Region Chairman, commented:

“The buoyant housing market reflects the strength of the West Midlands economy as a key growth area in the UK. We are seeing the region fast become a destination of choice for many businesses which is having a positive impact on the economic growth of the region and regional housing markets.  

“Whilst strong house prices are good news for many, we must continue to build much-needed homes across a range of housing tenures to make sure the market remains open to those who are not yet on the housing ladder.”

Projected UK and regional house price growth and house price values (£000’s)

  Average house price growth Average house price values (£’000s in cash terms)
Region 2018 2019 2020-2022 (average) 2017 2022
East of England 4.0% 4.5% 3.4% 283 340
East Midlands 4.4% 3.7% 3.4% 180 216
South West 4.3% 3.7% 3.6% 245 295
West Midlands 4.8% 4.3% 3.6% 185 225
South East 2.3% 3.1% 3.3% 318 369
North West 3.2% 2.7% 3.5% 155 182
London -1.7% -0.2% 2.6% 480 509
Wales 3.0% 2.1% 3.4% 150 175
Scotland 4.8% 3.4% 3.6% 143 172
Yorkshire & the Humber 3.5% 2.7% 3.4% 155 182
Northern Ireland 3.4% 3.9% 4.0% 128 154
North East 1.2% 0.7% 3.1% 127 141
UK 2.9% 2.8% 3.4% 221 259

Source: ONS, PwC analysis

Richard Snook, senior economist at PwC, commented:

“UK house price growth remained resilient in 2017 despite a weakening economic backdrop, but has shown signs of moderating during the first half of 2018, particularly in London. Affordability in the capital has been stretched due to three factors: a high deposit saving hurdle, increased economic uncertainty relating to Brexit acting as a drag on international investment, and reduced numbers of housing transactions due to stamp duty changes.

“However, London house price growth should pick up again from 2020. We project the average price of a London home in 2022 to be £509,000, compared to £141,000 in the North East. This means the large affordability gap between the capital and other UK regions is set to remain.”

Past rises in UK house prices have been driven by a number of factors, but one of these has been a lack of new housing supply. PwC’s new analysis at the local authority level across England suggests a clear link between a lack of new housing supply, relative to population growth, and local house price growth since 2011. This has been particularly marked in London, PwC estimates around 110,000 more homes would need to have been built between 2011 and 2016 to keep up with population growth.

 Looking ahead, if the government can achieve its target of building 300,000 new homes a year in England by the mid-2020s, then this should exceed the increase in housing demand from projected population growth and therefore start to make up the backlog from past under-supply. But PwC’s local analysis suggests that many of these homes need to be built where demand is highest in London and the South East and the East of England to prevent a further worsening of affordability in those regions.

Richard Snook commented:

“Local targets need to be set and met for house building, linked to supporting infrastructure development, as well as national targets. Building new homes in the wrong places will only perpetuate England’s housing supply problems.”

PwC has also analysed the recent marked trend towards fixed rate mortgages, which in 2017 accounted for 94% of new mortgages compared to only around 50% in 2010. At the same time, only around 28% of UK households now have a mortgage, as opposed to renting or owning their home outright. Combining these two factors, we estimate that only around 11% of all UK households would be immediately affected if mortgage interest rates rose, compared to around 24% in 2012.

John Hawksworth, chief economist at PwC, concluded:

“The MPC has a finely balanced decision to make on interest rates in August. But they should not be overly concerned about small rate rises causing significant short-term economic damage, given our estimate that only around 11% of UK households would be immediately affected by any rise in mortgage rates.”

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