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House prices will rise 14% by 2015

Think-tank predicts house prices will rise to £200,700 in the next four years despite the continuing sluggish economy draining disposable income.

By Donia O'Loughlin | Published Aug 19, 2011 | comments

Average UK house prices will rise by 14 per cent in the next four years, largely due to the ongoing shortage of housing, a gradual increase in the availability of mortgages and a prolonged period of loose monetary policy, according to the Centre for Economics and Business Research (CEBR).

The latest forecast is slightly lower than the 16 per cent growth that the think-tank predicted in May.

For 2011, CEBR has revised up its forecast slightly from a drop of 1.4 per cent to a slightly more positive 1.3 per cent.

CEBR claimed that housebuilding will remain depressed for the next four years and consequently, with population growth and falling average household size there is likely to be an increasing shortage of accommodation.

The think-tank believes this is likely to elevate house prices, making home ownership less affordable and placing further pressure on the rental market.

Levels of home-ownership are currently at 68 per cent, indicating a marginal fall from their peak of 71 per cent in 2000. CEBR predicts that current levels of homeownership will decline further as more first-time buyers enter the rental market.

Shehan Mohamed, economist at the CEBR, said: "We forecast an average of 110,000 new homes to be built every year over the medium term.

"This is significantly lower than the 225,000 homes that need to be created every year to keep pace with current housing needs, population growth and the trend towards reduced household sizes."

The think-tank also claimed that base rates are unlikely to rise above two per cent before 2015 and mortgage rates are likely to remain close to their current levels and "could fall if circumstances permit more quantitative easing".

Douglas McWilliams, chief economist at the CEBR, said: "But the housing shortage is likely to push prices gently upwards.

"Because we have revised down our forecast for economic growth from 2012 to 2015, we have also cut our forecast growth in house prices to 2015 from 15.8 per cent to 14 per cent.

"By 2015, our updated forecast price for the average house is £200,700. The previous peak level was £191,200 in 2007."

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