This report summarizes the prospects for the UK housing market in winter 2015. It predicts that house prices will rise 4.5% in 2015 and 4.4% in 2016, supported by an improving economy. However, sustained low interest rates could fuel faster growth of nearly 7% in 2016. Regional disparities are growing, with prices weakest in the North East and Scotland. The supply of homes remains constrained, despite strong demand and real earnings growth supporting buyer affordability.

1. UK HOUSING
MARKET PROSPECTS
WINTER 2015
RESEARCH

2. Theme: Modernist housing in the UK
Front cover: Golden Lane Estate, London
This page: Balfron Tower, London

3. UK HOUSING MARKET PROSPECTS
3
www.realestate.bnpparibas.com
• House prices to finish the year having grown by 4.5% in 2015 with 4.4%
growth predicted for 2016 supported by an improving economic backdrop.
This assumes a slow rise in base rates next year, however, it is also likely that
the brakes are applied to the housing market earlier in the form of mortgage
finance constraints
• Our alternative forecast scenario, with the current base rate held stable well
into 2017, would fan the housing market pushing price growth to nearly 7%
in 2016. This scenario would deliver a credit boom with parallels to the early
2000s and would likely force the Bank of England to seek more substantive
mortgage finance restrictions.
• Regional house price disparities are growing with the North East and Scotland
showing the greatest weakness, while London stabilises, however, these
regional figures do mask a range of growth outcomes at a micro location level
in most cities.
•• THE HEADLINES
CONTACTS
Simon Durkin
Head of Research
simon.durkin@bnpparibas.com
020 7338 4020
Adrian Owen
Head of Residential
adrian.owen@bnpparibas.com
020 7338 4064
Sam Blake
London & Business Line Research Lead
samuel.blake@bnpparibas.com
020 7338 4130
Tim Cann
Central Southern, South Coast & South West
tim.cann@bnpparibas.com
011 7984 8405
Steven Cooper
Central London
steven.cooper@bnpparibas.com
020 7338 4045
David Couch
North and Midlands
david.couch@bnpparibas.com
011 4263 9221
Julian Gaynor
South East of England
julian.gaynor@bnpparibas.com
020 7338 4162
Nadir Khan-Juhoor
Scotland
nadir.khan-juhoor@bnpparibas.com
013 1260 1118
RESEARCH
RESIDENTIAL
BNP Paribas Real Estate
5 Aldermanbury Square
London EC2V 7BP
Tel.: 020 7338 4000
Dunboyne Road Estate, London, NW3
Park Hill, Sheffield

4. The UK economy has continued to demonstrate sustained expansion, although the provisional GDP estimates for Q3 suggest growth
tempered over the last quarter to around 0.5%. Construction and manufacturing output showed a marked slowdown. Manufacturing is
struggling to sustain activity against global economic headwinds and the associated strength of Sterling, despite the upside of lower
commodity prices. However, concerns should not be overstated; China’s economy is slowing rather than contracting, meanwhile the
Euro-zone is showing signs of more robust growth.
FIGURE 1: ECONOMIC FORECASTS
•• ECONOMIC BACKDROP
1
Expenditure estimate at factor cost
2
U.K. Wholly unemployed excluding school leavers (new basis)
3
Sterling effective exchange rate, Bank of England Index (2005 = 100)
The subdued global picture places greater onus on domestic
demand to shoulder responsibility for the UK economy for a
little while longer. Positively, improved business confidence and
productivity levels are translating into a strengthening labour
market. The UK unemployment rate fell to 5.3% in Q3, the lowest
level since Q2 2008, while the number in work stands 419,000
ahead of the same point last year. The pace of job creation is likely
to slow, but improving productivity will have a further positive
impact on earnings. With the benefit of minimal or flat inflation
over the coming quarters, real average earning growth seen over
the last year is expected to persist.
FIGURE 2: RISING REAL EARNINGS
2012 2013 2014 2015 2016 2017 2018
GDP GROWTH1
0.7 1.7 2.8 3.0 2.6 2.4 2.4
INFLATION
CPI 2.1 1.9 1.6 0.1 1.0 1.0 2.0
RPIX 3.2 3.1 2.4 1.3 1.9 1.9 2.7
UNEMPLOYMENT (MILLIONS)
ANNUAL AV2
1.6 1.4 1.0 0.8 0.7 0.7 0.6
4TH QTR 1.6 1.3 0.9 0.7 0.7 0.7 0.6
EXCHANGE RATE3
83.0 81.6 87.1 91.1 91.9 92.5 92.2
3 MONTH INTEREST RATE 0.9 0.6 0.6 0.6 1.0 1.6 2.1
5 YEAR INTEREST RATE 0.9 1.3 1.8 1.8 2.2 2.5 2.5
CURRENT BALANCE (£BN) -53.2 -65.9 -84.2 -77.8 -78.2 -78.8 -79.5
PSBR (£BN) 110.6 95.2 88.6 83.6 78.7 57.6 38.5
Source: ONS (historic); Liverpool Macroeconomic Research (forecast)
Source: ONS
Note: Average Earnings – 3 month average y/y % change
Trellick Tower, London, W10

5. UK HOUSING MARKET PROSPECTSUK HOUSING MARKET PROSPECTS
Further improved household finances and confidence over
the next 12 months will inevitably create excessive and
unwelcome pressure on the market. We expect prices to have
risen by 4.5% in 2015 and to rise by 4.4% in 2016. Over the next
five years, to the end of the decade, we expect the average
house price to grow by close to 7% per annum, reflecting a
period of ‘catch-up’ as real prices return to the trajectory of
their long term trend.
FIGURE 3: REAL UK HOUSE PRICE GROWTH AND FORECAST
•• HOUSE PRICE FORECASTS
6.7% 11.5%
The forecast absorbs the impact of the Chancellor’s Autumn
Statement announcement of the introduction of a 3% additional
SDLT for purchases of additional residential properties, such as
buy-to-let properties and second homes, excluding corporate
investment purchases.
Overall we do not believe the additional tax, which will take
effect 1 April 2016, will impact on average UK house price
growth, but will be felt in town centre sub markets and
Central London and this will be reflected in price growth in
these markets in 2016. In large part this will be driven by the
fortunes of the new build market with its high proportion of
investment and second home purchases. The SDLT levy comes
on top of the phased changes to tax relief announced in the
July budget.
price rise in 2017price rise in 2017
4.4% 6.9%
price rise in 2016 price rise in 2016
CENTRAL SCENARIO:
BASE RATES RISE LATE
2016
ALTERNATE SCENARIO:
BASE RATES HELD AT
0.5% INTO 2017
Source: BNP Paribas Real Estate; Nationwide
Note: Real prices presented on logarithmic scale to illustrate the
pace of price change
In theory this creates a positive backdrop for the housing market.
However, consumer confidence has been damaged by global
economic news and associated stock market movements. While
consumer spending remains strong, household confidence to
make significant purchases has slipped. Furthermore, ‘macro-
prudential’ controls exerted on the housing market in the form of
mortgage lending restrictions also served to contain activity over
the last quarter. Prices rose 1% during Q3 (Nationwide) in line with
that seen in Q2, but marginally down on our expectations.
However, wobbles in household confidence aside, it remains the
case that growing real earnings combined with the exceptionally
low cost of finance is mitigating the impact of rising prices,
bolstering the housing market. October saw a slight acceleration
in growth to 0.6%, up from 0.5% in September, placing prices 3.9%
ahead of the same point last year (Nationwide). The mortgage
market also points to strong underlying demand. The value of
gross lending in September stood at its highest level since 2008,
while lending for home purchases in Q3 was 18% higher than in
Q2. Activity by first time buyers was particularly strong, with this
group also benefiting from improved finance rates on higher LTV
loans (CML).
While the fundamentals for demand look set to strengthen further,
particularly in light of Bank of England comments on a deferred
base rate rise to 2017 (although the BNP Paribas House View is
still mid 2016), the supply picture remains a serious concern. The
RICS continues to report a growth in homebuyer enquiries while
the supply of homes for sale remains depleted. The increased
Stamp Duty rate at the upper end of the market has impacted
upon the supply of property further down the chain. Meanwhile,
housebuilders are taking a more cautious approach in the face of
new housing policy measures, reflected, in part, in the sector’s
contribution to GDP over the last two quarters. The ability of the
new starter home policy to deliver significant numbers in the right
places is also unclear just yet.
•• THE HOUSING MARKET IN Q3
Total price growth Average annualised
price growth
2016-19 forecast 2016-19 forecast
27% 7%
5
www.realestate.bnpparibas.com
Brunswick Centre, London, WC1
FORECAST
LONG TERM TREND

6. •• FUTURE PRICE GROWTH
The disparity in prices across the regions of the UK continues to
accentuate, with the North East, Scotland, Wales and Northern
Ireland showing less ongoing pressure of demand on the available
supply. However, in other regions such as the Midlands, North
West and the non-London south we expect to play a degree of
catch-up with London where, following its outperformance for so
many years, prices are forecast to grow slightly below the national
average.
There will be local markets where the impact of the 3% SDLT
increase will be more acutely felt. Central London and city centres
such as Manchester and Leeds, where there is a high proportion of
new build stock bought for investment or second homes purchases,
will exhibit high levels of activity before the April deadline and
then most likely a more subdued outlook.
Given the relative small scale of this segment of the market in the
London context in particular, the impact will be relatively slight
on forecasts for London overall, with a 1% shortfall in growth
otherwise expected. Once the tax changes are bedded in, markets
will trend toward previously forecast trajectories, albeit with
some uncertainty surrounding the longer term role and fortunes
of the prime central London market.
This forecast assumes that the current base rate start its
slow upward movement in mid to late 2016. However, given
the Governor’s suggestion that the base rate will possibly
remain at 0.5% until 2017, we have undertaken an alternate
forecast scenario. Under this assumption we would expect to
see a sharp increase in GDP and inflation, while effectively
delivering a credit boom not unlike the early 2000s. Under this
scenario house prices would rise by almost 7% in 2016 and by
over 11% in 2017.
This scenario is a cautionary tale for the market. Certainly,
there is already concern at the Bank of England over the pace
of house price growth. Clearly housing supply, or the relative
lack of it, is a significant driver, however, the sustained low
cost of finance is also a major contributor. Even under our
central scenario it is likely that the Bank will seek to place a
brake on house price growth, by means of further restrictions
on the availability of finance. This may achieve the desired
dampening effect, although does not address the underlying
structural issue in the market of insufficient supply, although
3% levy on SDLT for additional properties will release supply
in some submarkets.
Barbican Estate, London, EC2
Keeling House, London, E2

7. www.realestate.bnpparibas.com
7
UK HOUSING MARKET PROSPECTS
Northern
Ireland
Scotland
North
East
North
West
Yorkshire &
Humberside
East Midlands
West
Midlands
Wales
South West
Outer
South East
East Anglia
London
40.2% 36.1%
25.5%
25.1%22.0%
31.2%
29.6%
13.2%
23.7%
22.2%
15.7%
16.7%
10-19%
20-29%
30-39%
40-45%
Source: BNP Paribas Real Estate
•• COMPOUND PRICE GROWTH, 2016-2019

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92867 Issy-les-Moulineaux
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Boulevard Louis
Schmidtlaan 2 B3
1040 Brussels
Tel.: +32 2 290 59 59
Fax: +32 2 290 59 69
CZECH REPUBLIC
Pobřežní 3
186 00 Prague 8
Tel.: +420 224 835 000
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Goetheplatz 4
60311 Frankfurt
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Fax: +49 69 2 92 91 4
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Hong Kong
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Fax: +852 2865 2523
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H-1123 Budapest,
Tel.: +36 1 487 5501
Fax: +36 1 487 5542
IRELAND
20 Merrion Road,
Dublin 4
Tel.: +353 1 66 11 233
Fax: +353 1 67 89 981
ITALY
Via Carlo Bo, 11
20143 Milan
Tel.: +39 02 58 33 141
Fax: +39 02 3706 9209
JERSEY
3 Floor, Dialogue House
2 - 6 Anley Street
St Helier, Jersey JE4 8RD
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Axento Building
Avenue J.F. Kennedy 44
1855 Luxembourg
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Antonio Vivaldistraat 54
1083 HP
Amsterdam
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Al. Jana Pawła II 25
00-854 Warsaw
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ROMANIA
Union International Center
11 Ion Campineanu Street
6th floor, 1st district
Bucharest 010031
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C/ Génova 17
28004 Madrid
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Plot n° 144, W-11
New Al Bateen Municipality
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Fax: +971 44 257 817
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Emaar Square
Building n° 1, 7th Floor
P.O. Box 7233, Dubaï
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Front cover image source
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