Increasing difficulty in getting on the housing ladder, together with the increasing prospect of a rate rise, is expected start to put the brakes on house price growth during 2016.
A continuing shortage of supply is also likely to continue to act as a significant constraint on activity in 2016, with growth expected to slow more sharply in London than elsewhere. Mortgage affordability in London is now worse than its long run average; the only region in the UK where this is so, according to Halifax.
However levels of housebuilding are expected to improve over the medium-term, helping to bring demand and supply into better balance and constraining upward pressure on house prices.
UK home sales in Q3 2015 were 4% higher than in the preceding quarter. The volume of mortgage approvals for house purchases also increased by 4% between Q2 and Q3.
Halifax’s housing economist, Martin Ellis, commented:
"With house prices continuing to increase more quickly than average earnings, it is increasingly difficult to get on the housing ladder. This ongoing development, combined with the growing prospect of an interest rate rise, should start to put the brakes on house price growth during the course of 2016. Annual house price growth nationally is expected to slow to 4-6% by the end of 2016.
“A continuing shortage of supply is likely to continue to act as a significant constraint on activity over the coming year. Sales in 2016 are expected to be modestly higher than this year, but to remain well below the peak of 1.6 million in 2006.
"Increases in Bank Base Rate are expected to contribute to a slowing in the pace of house price growth over the medium-term. Gradual rate rises and increasing incomes should nonetheless keep mortgage payment affordability manageable for the overwhelming majority.
“Levels of housebuilding remain well below those required to keep up with the pace of household formation, but we do expect improvements over the medium-term. An upward trend in housebuilding would help to bring demand and supply into better balance, helping to constrain upward pressure on house prices.
“A greater focus on house price stability by policymakers should also help to prevent a future build-up of mortgage debt threatening financial stability and assist in curbing house price growth over the medium and longer-terms."
