House prices in Central London’s most exclusive neighborhoods are set to drop 6% this year on the back of the Brexit vote and a double whammy of higher sales taxes.
New research released Monday by Countrywide, the U.K.’s largest estate agency chain, predicts that house prices in prime central London will be the hardest hit of any region in the U.K., falling by 6% in 2016 and remaining flat in 2017, before rising 4% in 2018.
In comparison, house price growth across the whole of the U.K. is expected to slow to 2.5% in 2016 and to drop by 1% in 2017 on the back of economic risks and uncertainty. It won’t be until 2018 that they start to rise again, recovering to 2%.
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According to Countrywide, June’s vote to leave the European Union has unsettled the economy amid uncertainty surrounding the arrangements for decoupling from the E.U., and the effect this will have on trade and future economic growth. This in turn will lead to a weaker economy, which will affect house prices and transactions through consumer confidence, household incomes and the labor market.
Data on the ratio of asking to achieved prices shows that there has already been some impact on prices since the referendum. The ratios of asking to achieved prices have softened in most parts of the U.K., reflecting price negotiation in the face of the uncertain times ahead.
"Our central view is that the economy will avoid a hard landing, which is good news for housing markets. However, the weaker prospects for confidence, household incomes and the labor market mean that we do expect some modest falls in house prices," Fionnuala Earley, chief economist at Countrywide, said.
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"Not all of the corrections are due to the vote to leave the E.U. Stamp duty and weaker house price growth expectations, particularly in London’s prime markets, have a part to play."
Elsewhere, Countrywide believes that rental demand will remain strong as a result of uncertainty about the path of house prices and slower levels of activity.
Those unable to sell in a slower market may choose to rent their property to gain an income, while those moving may choose to rent for a while before purchasing, particularly if they expect a reduction in prices.
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