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London - London’s housing market will suffer most in 2016 as stretched affordability in the UK undermines demand, according to Halifax.
Driven by a lack of supply, British property price rises have outpaced wages, putting home ownership beyond the reach of many first-time buyers who can’t afford down payments.
That will begin to constrain price inflation, with London the most vulnerable region after a greater supply-demand imbalance there pushed values in the city higher than the rest of the country in the past three years, Halifax said.
“Mortgage affordability in London is now worse than its long-run average; the only region in the U.K. where this is so,” Martin Ellis, an economist at Halifax, said in a statement on Friday. “This suggests that price growth will slow more sharply in London.”
National values will increase between 4% and 6% by the end of next year, Halifax said. In October, prices gained 10% from the same month a year earlier.
While record-low borrowing costs have kept mortgage rates down, Bank of England Governor Mark Carney has said officials are debating when to start tightening policy for the first time in more than eight years. That will also damp demand over the medium-term, Ellis said.
“House price growth is expected to be broadly in line with income growth beyond 2016 as steadily rising interest rates increase the affordability constraint on the market,” he said.
“Gradual rate rises and increasing incomes should nonetheless keep mortgage payment affordability manageable for the overwhelming majority.”
