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Low interest rates spark house price boom across Europe


03-03-2016

For sale signs 
The European Central Bank has cut interest rates, supporting homebuyers

House prices are rising or stable in all major European economies thanks to ultra-low interest rates, according to a new analysis by Standard & Poor's.

Low rates are being passed on to consumers, allowing home buyers to borrow more money to fund bigger property purchases - in turn pushing up prices.

Asking prices in Britain have been rising for several years and will climb by 5pc in 2016, the report predicted.

The UK's buoyant market will be matched by similar price rises in Germany and Ireland.

Spain and Portugal - which were hit particularly hard by falling prices during and after the financial crisis - should see them rise by 2.5pc.

Italy's house price growth will be more modest at around 1.5pc, while France's housing market is set to stay flat for the year.

George Osborne, the Chancellor, has hiked taxes for landlords but analysts do not expect the move to dent house price growth significantly
George Osborne, the Chancellor, has hiked taxes for landlords but analysts do not expect the move to dent house price growth significantly Credit: David Rose/The Daily Telegraph

A key factor is the combination of returning economic growth and sustained cheap money.

Real GDP increased by 1.5pc in the eurozone in 2015 and by 2.2pc in the UK.

On top of that, Standard & Poor's found the average mortgage interest rate fell from 2.55pc in December 2014 to 2.28pc in December 2015, and could fall further if the European Central Bank (ECB) keeps easing monetary policy.

"We expect the ECB's accommodative monetary stance, leading to historically low sovereign bond yields and mortgage interest rates, will spur improvements in all housing markets," said economist Sophie Tahiri at Standard & Poor's.

"Many property markets are nevertheless susceptible to global economic headwinds that could dampen the fragile economic recovery and have a knock-on effect on house prices, especially in the periphery countries."

George Osborne, the Chancellor, has tried to take some of the heat out of the UK market with extra taxes on landlords, but analysts do not expect this to dent growth in prices.

"The UK government's measures to mitigate the housing shortage and address deteriorating affordability for first-time buyers are unlikely to significantly slow this upward momentum, in our view," said the report.

www.telegraph.co.uk/

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