House prices are still rising but surveyors are warning the market to be braced for a significant slowdown in the coming months.
Values across Britain jumped 9.2% over the year to May to sit at a typical £213,472, according to lender Halifax.
A chronic shortage of properties continues to drive house prices upwards across Britain. But with demand slowing sharply the Royal Institution of Chartered Surveyors (RICS) predicts that prices will fall for the first time since 2012.
Buyer demand dropped across the UK for the second consecutive month in May and at the fastest pace since 2008, with 33% more property professionals saying that demand decreased last month. This slowdown was almost certainly caused in part by the recent introduction of the 3% stamp duty surcharge for buy-to-let investors and second home buyers, and yet the signs are that the market could cool further amid clouds of uncertainty ahead of the EU vote.
Top-end sales have stalled across prime central London, with 35% more professionals reporting that prices had fallen rather than risen over the past month.
The fall in prime central London property prices looks set to ripple out to other parts of the country, with 10% more respondents predicting that prices would fall rather than rise over the coming three months.
London and East Anglia are expected to be worst hit with 43% and 33% (net balance) of respondents saying that prices will fall over the next quarter.
However, once uncertainty over the EU referendum had ended, RICS forecast that there will be a pick-up in the number of properties changing hands once more which will drive home prices higher in the longer term.
Simon Rubinsohn (below), the chief economist at RICS, said that there is not at this point a sense that a “fundamental shift” is taking place in the market.
He commented: “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 slowdown following the rush to get into the market ahead of the tax change on the purchase of investment properties.”
According to the RICS survey, house prices are thought likely to regain momentum, with property prices set to rise by 4.1% year-on-year for the next five years.
RICS’ longer-term forecast that house prices will increase further does not come as a surprise to property expert Peter Sherrard, who says that the “chronic” housing shortage will continue to drive house prices upwards.
Peter Sherrard, managing director of PropertyPriceAdvice.co.uk, said: "Uncertainty ahead of the EU vote coupled with a general slowdown in demand is now clearly having a chilling effect on the housing market as buyers are aware of the chance of a deal with some sellers acquiescing to the pressure. Added to this many people will clearly wait until after the referendum before buying or selling which all leads to a lot of uncertainty. However, the market will continue after June 23rd and supply and demand coupled with the ease of accessing funds will prevail.
"Increasing affordability issues and the stamp duty increase for buy-to-let landlords and second home buyers have also curbed housing demand which have resulted in a slowdown in the housing market, but this will be short-term.
"Looking longer term now, low interest rates, falling unemployment and rising real earnings will continue to support demand for property, and yet housebuilders are unlikely to build anywhere near the level of housing required. This cocktail of high demand and low supply will cause house prices to rise at a steady pace."