House prices ‘could fall in 2017 as Brexit hits spending power’

Nationwide shows prices edged up slightly in November, propped up by lack of supply, but downturn may be on the way as inflation rises

Valuations could fall in 2017 as spending power is reduced (Alamy)

House price growth slowed in November, prompting experts to warn that prices could fall in 2017 as higher inflation hits spending power. Nationwide Building Society recorded a 4.4 per cent rise in the year to November, the slowest rate since January.

The cost of buying a home was up 0.1 per cent in the month, after remaining flat in October, with the average UK property now valued at £204,947.

That number looks set to rise modestly in the short term, according to IHS Global Insight’s Howard Archer. “However, we suspect that house prices will come under increasing pressure as 2017 progresses and may edge down over the year, possibly by around 2 per cent,” he said.

Brexit-induced inflation will begin to drag prices down as other goods become more expensive, Archer predicted: “The fundamentals for house buyers will progressively deteriorate during 2017 with consumers’ purchasing power weakening markedly and the labour market likely softening.”

Consumer confidence weakened significantly in November, with GfK reporting that many more people plan to put off big purchases.

Despite the numbers, Robert Gardner, Nationwide’s chief economist, said demand conditions had strengthened in recent months, in part due to strong employment levels and record low borrowing costs.

Prices are also being kept afloat by the fact that house builders are not building the homes needed to satisfy demand.

“The relatively low number of homes on the market and modest rates of housing construction are likely to keep the demand/supply balance fairly tight in the quarters ahead, even if economic conditions weaken, as most forecasters expect,” Gardner said.

Data from the Council of Mortgage Lenders (CML) shows the popularity of fixed mortgage rates as borrowers lock into ultra low rate deals.

Average rates on fixed rate deals have fallen in recent years. Borrowers with a 10 per cent deposit are currently enjoying the lowest rates on record, at 2.42 per cent.