DOHA: Fitch Ratings forecast a nominal home price growth of 1 percent in 2020 and 2 percent in 2021 for the UK, which would represent a small drop in real terms, as long as a UK-EU trade agreement is agreed by the end of a transition period.
The ratings agency, said in its “Global Housing and Mortgage Outlook 2020” that it is expecting a formal exit from the EU next month, but uncertainty around a new trade agreement will continue to suppress confidence in the housing market, reduce transaction volumes and limit price growth.
Nominal home prices are likely to fall if a no-deal Brexit were to occur at the end of the transition period. “We view prices in London and south-east England as overvalued compared to household income, while income multiples in northern regions have not risen as much and further limited real price rises are possible.”
Fitch forecasts arrears of three months or more to remain muted but rise from a low base of 0.8 percent in 2019 to 1 percent in 2020 and 1.1 percent in 2021, even if a no-deal Brexit is avoided. “We expect that a rise in unemployment of 40bp and a 50bp increase in the base rate by the end of 2021 will put upward pressure on arrears, especially for non-prime loans and self-employed borrowers. “However, tighter underwriting standards over the past decade and continued low interest rates will support low arrears. An exit without a trade deal would prompt a larger increase in arrears”, the ratings agency noted.
In the UK market, Fitch expects a reduction in prepayment rates in all Brexit scenarios as refinancing is occurring less frequently due to the increasing popularity of fixed-rate periods of five years or more (47 percent of new lending compared with 25 percent three years ago).
It anticipates gross new mortgage lending growth to increase slightly from 0.5 percent in 2019 to 1.2 percent in 2021. Lending activity will focus on refinancing as sales numbers remain depressed. Buy-to-let (BTL) lending is expected to remain stable as professional landlords stay active. An exit without a comprehensive trade deal may lower demand for rental property, putting downward pressure on yields.
In the US, Fitch Ratings expects national home prices to grow by about 3 percent on a nominal basis in both 2020 and 2021, which is 0.5 percent-0.7 percent a year in real terms. Prices will be supported by low unemployment and growing household incomes but will face downward pressure from stretched FTB affordability, slower GDP growth from the China trade dispute (below 2 percent in 2020 and 2021), and cooling prices in higherpriced markets, such as New York, New Jersey and California.
The continued loss of state and local tax deductions for property-related payments weighs on these markets.
Globally, Fitch Ratings forecasts subdued home price growth in 2020-2021 due to stretched affordability, more challenging economic growth prospects and macro-prudential measures restricting mortgage eligibility. This is despite falling or very low mortgage rates, insufficient supply in major cities and stable or improved employment levels in most countries.
Source from: The Peninsula