House prices could rise 20% by 2013

The centre for economics and business research is predicting that the average UK house price will be around 20% higher than today’s levels by the end of 2013.

Its forecasts are based upon an improved mortgage lending outlook with mortgage approvals predicted to reach around 72,000 per month by the end of 2010 from today’s level of around 60,000 per month, and will increase to around 90,000 per month by 2013.

This is still some way short of pre-credit crunch levels of mortgage lending, but will likely lead to a sustainable growth path for house prices over the medium term. In addition, cebr’s central forecast for interest rates is that rates will remain on hold at 0.5% until mid-to-late 2011.

The report shows that the rate of house price growth is expected to moderate in 2010, but prices will still be around six per cent higher at the end of the year than at the start. During 2011, house price growth will falter as economic growth falters on public sector cutbacks, with associated increases in unemployment.

Beyond this though, the current shortage of new housebuilding will mean that supply side problems persist, and we expect to see growth of eight per cent in 2012 and a further four per cent in 2013.

Benjamin Williamson, one of the report’s authors and economist at cebr, says: “The fact that house prices have already risen by almost ten per cent since the bottom of the cycle has surprised most commentators.

“However, with the rate of mortgage lending more than doubling over this period of time, a shortage of new properties on the market, low interest rates and unemployment not rising nearly as fast as expected, it is easy to see how prices have moved so quickly.

“This combination of factors will continue to push prices up during 2010, albeit at a more modest rate than we have seen over the last six months.”