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UK house prices to grow 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.”

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  • Andrew Fellows 22nd November 2010 at 6:56 am

    House prices are still vastly high, especially in the South-East of the UK, the economy is in a complete mess and sellers are totally unrealistic about house prices. Having spent many years overseas until two years ago, I am astonished by the bad quality of houses where people are asking 400-900 K £ which is about 35% too much. We don’t need a housing market, we need a crash to bring reality back into the system here. Look at Germany or Switzerland where houses are expensive but worth every penny.
    It’s time for a crash on Irish proportions which makes housing affordable again for middle-income earners.

  • Jon 2nd February 2010 at 10:54 am

    What appears to be overlooked by this survey is the disappearance of self certification – many incomes were grossly inflated to obtain higher mortgages.
    If future mortgages are based on true earnings it is likely to be sometime before a significant number of people will be able to borrow more than their current mortgage level, and thus restricting their ability to move.

    Yes, the quantitive easing will contribute to inflation, and people will move, but significant property price increases will be held back by the ability of people to borrow more money.

    Add to this the significant number of buy to let properties available keeping rents down, more people will be happier to rent for longer.

  • Pedro Nixon 1st February 2010 at 1:37 pm

    I agree with everything Anonymous is saying. Property prices are still too high and are in need of correction. This will happen with increased interest rates and increase in taxes.

    I am getting out of this country to a place with more opportunities and less taxes and better education for my kids.

  • Andrew Freeley 1st February 2010 at 12:57 pm

    This is an incredibly optomistic forecast. The UK has its highest level of national debt ever, which will lead to budget cuts and increasing tax rates, the latter starting in April 2010 for higher rate earners and continuing for at least 5 to 10 years. So many people will have significantly less take home pay and unemployment is likely to increase again as government spending cuts back.

    Interest rates will need to increase to offset unexpectedly high levels of inflation as well as to protect a depreciating currency and to address issues with the balance of payments in the UK. Interest rate increases will be gradual but are more likely than not to happen before mid 2011, say from mid 2010. So mortgage repayments will increase sooner than expected and by a fairly significant amount for some households. Meanwhile, other household expenses are increasing by more than expected due to higher inflation than expected.

    Supply level is therefore likely to increase as more people cannot afford repayments and are forced into selling their homes. Demand will remain roughly the same.

    Mortgage lending is likely to increase further but credit will still be difficult to get, particularly with affordability reducing due to reduced levels of take home pay and increased household expenses.

    All of which points to a potential double dip in house prices, with another shock around the corner, possibly in late 2010 / early 2011. At best property prices will show much more modest growth by the end of 2013 than this article projects, say in the 3 to 8% range.