House prices will rise next year but at a slower rate according to the Halifax outlook report UK towns record biggest gains for 2016.
The housing market outlook report from Halifax expects house prices to rise by a slower rate of 1% to 4% in 2017 due to slower economic growth, pressure on spending power and affordability constraints limit housing demand.
Affordability in London is particularly acute and suggests price growth will slow more sharply in the capital giving first time buyers time to build an additional deposit.
For home movers leaving areas with the highest rising property values such as London to areas with lower growth can give them extra equity for a deposit to buy a larger home or reduce their mortgage.
Reduced demand for properties is likely to result in fewer house sales as more people respond to limits on affordability by not buying or moving home.
Even so, the Halifax expects house prices to rise due to the shortage of property for sale, low levels of housebuilding and low interest levels.
Towns lead house price growth
For 2016 Luton recorded the biggest rise in house prices up 19.4% for the year with average prices now £256,636 up from £214,934 compared to the national average rise of 7.5%.
The towns with the biggest increase in average house prices from the Halifax shows the top ten over the last year to December 2016:
| City | Average house price |
Annual change |
|---|---|---|
| Luton | £256,636 | 19.4% |
| Barking & Dagenham | £296,946 | 18.6% |
| Dunstable | £253,799 | 17.9% |
| Basildon | £258,068 | 17.2% |
| Chatham | £237,545 | 17.1% |
| Tower Hamlets | £411,495 | 15.8% |
| Watford | £418,080 | 15.3% |
| Basingstoke | £303,541 | 15.1% |
| Slough | £390,560 | 14.7% |
| Redbridge | £365,438 | 14.4% |
All the top performing towns are in London and the South East. Towns like Luton are within easy commuting distance of London with relatively low property prices.
For older homeowners the rise in value of their property allows the equity release mortgage buyer to access wealth to maintain their lifestyle, holidays or home improvements.
A small number of towns recorded a fall in house prices in 2016 such as Aberdeen in Scotland reducing by 6.9% mainly because of the fall in oil prices.
The areas with the biggest gains have been in easy commuting distance to central London as people in the capital look for more affordable areas.
One advantage of rising house prices in these towns for homeowners is remortgage buyers can now release capital to improve the quality of their homes such as improving bathrooms, kitchens and adding extensions.
Housing market dependent on economy
Martin Ellis, housing economist at the Halifax said, the housing market is critically dependent on how the wider economy evolves.
Slower economic growth in 2017 is likely to result in higher unemployment squeezing household spending power and coupled with inflation exceeding earnings there would be a curb in housing demand, says Mr Ellis.
House price growth for 2016 started strongly with the annual rate peaking in March at 10% with a rush to beat the rise in stamp duty tax on second homes and buy-to-let properties.
The buy-to-let market is expected to have limited demand due to the tightening of underwriting criteria requiring higher interest rate cover increasing from 125% to 145% of interest payments from many lenders.
In contrast for next year there is expected to be a slowdown in house price growth which is likely to be accompanied by a decline in activity with lower demand and house sales.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
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