Short-term drop in UK house prices predicted for the first time since 2012

Simon Rubinsohn

Chief Economist (RICS)

RICS UK Residential Market Survey, May 2016: House prices looks set to falter as increasing uncertainty weighs on the market.

Row of terraced houses in Camden, London
  • Demand from buyers falls at the fastest rate in eight years.
  • Prices across the UK see modest growth, while central London shows a price drop.  
  • House prices nationally set to dip over the coming months, while rents increase.

UK house prices are expected to experience a short-term drop for the first time since 2012, according to our latest Residential Market Survey.

In a rush? Watch my 60 second summary

Central London prices fall

House prices in central London are already falling, according to the survey with 35% more property professionals reporting that prices had fallen rather than risen over the past month.

Confidence in UK market falters

While prices are continuing to climb modestly across the rest of the UK, this trend looks set to fade, with 10% more respondents predicting that prices would fall rather than rise over the coming three months.

This is the first time that a fall in prices has been predicted since 2012. London and East Anglia are expected to be worst hit with 43% (net balance) and 33% (net balance) of respondents saying that prices will fall over the next quarter.

Sadly, for the many young people looking to enter the property market, it is unlikely that we are seeing the emergence of a more affordable market. Instead, it appears to me that what we are looking at is a short term drop caused by the uncertainty resulting from the forthcoming EU Referendum coupled by a slow-down following the rush to get into the market ahead of the tax change on the purchase of investment properties.

Certainly, that’s the story we are hearing from our members. There is not at this point a sense that a fundamental shift is taking place in the market.

Demand drops at fastest rate since 2008

Buyer demand fell across the UK for the second consecutive month and at the fastest pace since 2008, with 33% more property professionals saying that demand decreased last month. 

House prices to regain pace in longer-term

The survey revealed that in the longer term, while house prices are thought likely to regain momentum, rents look set to outpace them, with UK rents predicted to increase by 4.7% year-on-year for the next five years, compared to house price increases of 4.1%.

The number of agreed sales also fell for the second consecutive month with a net balance of 22% of respondents reporting a fall rather than a rise in activity.

Residential Survey, May 2016: A 60 second review

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