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House price predictions: up 9pc this year, 6pc in 2015 - if rates don't rise too quickly


09-02-2014

 

Experts predict a sharp rise in housing prices for 2014 - but smaller increases for the next two years

House prices rise to ten times average salary
Despite slower growth in mortgage lending and a sharp fall in asking prices, house prices are expected to increase Photo: REX

They predict a rise 9pc for 2014 followed by 6pc next year and 4pc in 2016, slightly stronger than the previous poll conducted in May.

Prices in London are expected to climb even quicker, up 12pc this year, 6pc next year and 5pc in 2016, the poll of 20 experts by Reuters found. This was down slightly from May when the forecasts for each year were 12pc, 7.5pc and 6.5pc.

The predictions, taken in the past week, come despite signs of a slowdown in the market, evident in slower growth in mortgage lending and a sharp fall in asking prices for property.

The experts asked said the heady gains could be curbed if the Bank of England raises rates.

"Given that (interest) rates have been at 0.5pc for so long, many households will have to significantly adjust spending when rates go up," said James Kingdon at property consultancy GVA.

"There are, however, a large number of households who have taken long-term fixed-mortgage options to protect against this scenario, suggesting any negative effect will be felt further down the line."

The Bank Rate was cut to a record low 0.5pc in March 2009. Many assume it will be the first major central bank to raise rates - probably in the first three months of next year - and that it will follow up with regular increases.

That would make mortgages more expensive. The average asking price for a home was £262,401 in August, according to property website Rightmove, down nearly 3 percent from July, but still around 10 times the average British salary.

In June, the BoE put limits on how much mortgage lending British banks could do at high loan-to-income ratios. It also imposed tighter affordability constraints on prospective home-buyers.

Perhaps unsurprisingly, therefore, the poll said prices were too high. It gave a consensus rating of 6 on a 10-point scale, where one is very undervalued and 10 is very overvalued. In London the consensus was 9 - and five analysts said 10.

"Long-term housing affordability measures relative to net incomes show the current position way above long-term trended averages. This position is accentuated in London," said Mark Farmer at investment consultancy EC Harris.

Analysis by the OECD earlier this year suggested UK house prices were 24pc too high against wages and 35pc compared to rents.

Data from Halifax, Britain's biggest mortgage lender, shows that average UK house prices are 4.89 times greater than the typical wage, up from 4.54 a year earlier. This compares with an average of 4.11 since 1983. The low was 3.09 at the end of 1995 (see the second chart).

But repayments on mortgages have been kept relatively low against incomes, compared with historic averages, due to low rates, even for first buyers (see the chart).

Affordability for first-time buyers since 1983:

House price to earnings ratio for all buyers since 1983:

 

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