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Home > Investments > Economic Indicators

By Donia O'Loughlin | Published Dec 06, 2012

L&G: House prices to jump 17% by 2015

The UK housing market has bottomed out and we are now climbing back towards “the new normal”, which will arrive in 2017, according to a new research report released today by Legal & General’s Mortgage Club and the Centre for Economics and Business Research.

The study, titled A New Normal in the Housing Market, says that in 2017 average UK house prices will be £254,000, 17 per cent higher than this year. CEBR expects prices to fall or remain broadly flat until mid-2013, after which, house prices are anticipated to climb to £227,000 by 2015.

Borrowing conditions are expected to remain strict compared to the pre-2008 crisis period. CEBR forecasts 674,000 mortgage approvals (for house purchase) in 2017 compared to 1.25m in 2006 peak. This is equivalent to 1,600 daily mortgage approval transactions compared to 3,900 during 2006. The value of gross mortgage lending by 2017 is expected to be £212bn compared to £363bn in 2007.

The average loan-to-value ratio for first-time buyers is currently 80 per cent in 2012, which compares against 90 per cent in Q4 2007.

Looking ahead, L&G expects first-time buyer loan-to-value ratios to approach 85 per cent by 2017 as structurally weaker earnings growth and higher costs of living imply greater difficulties in raising deposits.

LTV ratios for existing homeowners are expected to remain broadly the same at around 70 per cent by 2017.

Affordability of housing is anticipated to be better by 2017 as disposable income growth catches up with house price appreciation. In 2017, the average house price to disposable income ratio is expected to be 5.8, compared to 6.5 during the 2007 peak.

The cost of borrowing is expected to be lower than during the ‘pre-2008 crisis’ period. By 2017, mortgage rates are expected to be around 3 percentage points lower than in the 2007 peak.

Ben Thompson, managing director of the Legal & General Mortgage Club, said that the past five years have been extraordinarily tough for the housing market, but there is “good news” on the way.

He said: “We’ve hit the bottom and over the next four to five years we will creep back towards recovery in 2017. However, ‘the new normal’ represents a very different housing market to the one we have grown accustomed to in the past.”

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