UK: Has the BoE sheltered the housing market? – RBC CM

Research Team at RBC Capital Markets, notes that the indicators show that UK house price growth rates are set to slow in the coming months.

Key Quotes

“In particular, at 8.3% y/y, the official ONS measure looks over-inflated relative to other measures.

Despite significant regional variation in growth rates, indices of average UK house prices had already shown signs of slowing growth in the run up to the EU referendum, having risen fairly consistently since early 2013.

Transactions volumes have been volatile in 2016 but the early signs are that we should be braced for lower turnover and the associated economic costs.

For the next few months the housing market is likely to find support from the renewed stimulus of the Bank of England driving lower mortgage costs.

Looking further ahead, the costs of Brexit-related uncertainty could weigh on the labour market and have negative knock-on consequences for house prices.

The house price profile used in our inflation forecast to determine the mortgage interest payments (MIPs) component of the CPI-RPI ‘wedge’ has growth slowing in the short-term with stagnation in house prices in H2 2017 followed by a small reduction in average prices in 2018.”