House prices will grow at their slowest level for four years due to a shortage of stock and rising inflation, economists claim.
Analysis for the Centre for Economics and Business Research says house prices will still rise in the coming years despite Brexit, but by just 4.4% in 2017 and below 5% for the next two years.
In contrast, house prices rose 8% in 2014, 6% in 2015 and 7.5% in 2016, according to ONS data. This put average prices at £211,000 at the end of last year.
The CEBR estimates the average UK house price in the UK will reach £220,000 this year and £272,000 by 2021.
Kay Daniel Neufeld, economist for the CEBR, said: “The shortage of suitable housing continues to exert pressure on property prices: according to the Government’s housing white paper, more than 40% of local planning authorities do not know how to meet local housing demand over the next ten years.
“Looking at the higher end of the market, those looking to sell can hope to benefit from a pick-up in foreign demand due to the low value of sterling.
“While these factors will provide a bottom floor to price growth, substantial risks on the downside remain.
“Rising inflation in combination with stagnating wage growth has led to a halt in real income growth. This will hurt consumers’ disposable incomes and put a dampener on housing demand in 2017 and 2018.
“Furthermore, the property market is still reeling from additional taxes, which the previous Government implemented not expecting that the UK would find itself preparing to leave the European Union.
“The increase in Stamp Duty on second homes, which was introduced in April last year, led to plummeting transaction numbers in the subsequent months which have still only partly recovered.”
Responding to the report, David Brown, chief executive of Marsh and Parsons, said: “A lot of the fears many had around Brexit haven’t materialised, both in terms of the wider economy and the housing market which has proven resilient.
“The London property market remains an attractive global hub, luring people from around the world to invest and live here.
“In many ways, the vote has actually brought vigour to some parts of the market, as we are seeing renewed interest from overseas property purchasers as a result of the weaker pound to complement the strong demand from domestic buyers.
“The strength we have seen in the market is reflected in mortgage approval data. At just below 70,000 a month, this is close to the post-crisis high of 74,000 in 2014 and we only expect that to increase in the coming months.”