The bank also said that an interest rate rise is unlikely in the first half of 2015, noting signals of caution from the Monetary Policy Committee in its November Inflation Report.
Halifax added that while a rate rise as early as February couldn’t be ruled completely, the pace of wage growth would need to accelerate considerably in the months ahead of early 2015 to persuade the MPC that the UK is ready.
In 2015 ‘real’ earnings are expected to increase for the first time in several years, while Halifax expects economic activity to grow by around 3% in both 2014 and 2015.
Martin Ellis, Halifax’s housing economist, said: “The prospect of higher interest rates at some point in the year and reduced affordability are expected to be key factors curbing housing demand.
“A looming general election next May could also raise uncertainty, resulting in a lull in activity in the early months of the year.
“Despite these downward pressures, housing demand should be supported by continuing economic recovery, growth in employment and still low mortgage rates.
“Average earnings also appear set to rise more quickly than inflation next year, with the first gain in ‘real’ earnings for several years stimulating demand.”
House price growth has declined in the last three quarters according to Halifax data; house prices were 0.8% higher in the three months to October compared to the preceding three months. This was the third consecutive decline in the quarterly rate of increase and the smallest rise since December 2012.
Annual pay growth stood at 1.3% in September, which closes the gap on the current rate of consumer price inflation (1.3%).
Halifax expects housebuilding to stay roughly in line with income growth, as Ellis said that “levels of housebuilding remain well below those required to keep up with the pace of household formation” before adding that “the latest data shows signs of a revival”.
He said: “House price growth in the UK during 2013 and 2014 has been very much led by London – and to a lesser extent - the rest of southern England.
“With mortgage affordability in London now worse than its long run average, there has been a notable cooling of buyer interest in property in the capital in the last few months.
“Global economic worries could also reduce demand and activity at the top end of the London market in 2015.
“Outside the South East and London, house prices do not appear markedly out of line with fundamentals.
“We, therefore, expect to see a more even regional pattern in house price growth during 2015.”
