House prices to rise further, but no ‘bubble’ in 2014

House prices will rise in 2014 in a range between 4 per cent and 8 per cent as the economic recovery continues and low interest rates continue to keep mortgage rates attractive, Halifax has predicted.

Halifax said in its UK housing market outlook for 2014 that mounting signs the economic recovery is becoming firmly established, together with a predicted decline in unemployment, should further boost consumer confidence. This will increase the likelihood that more people will consider buying a property.

Nationally house prices increased by 7 per cent in the first 11 months of this year, Halifax research has shown, and the lender expects house prices to continue to rise at a broadly similar pace next year.

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However, countering fears of a house price ‘bubble’ the firm said factors such as continuing pressure on household finances and the potential for more properties to come onto the market due to government plans to boost supply should limit any increase.

Despite the recent gains, house prices remain 12 per cent below their August 2007 peak and transactions in 2013 are still around a third below the average for 2006 and 2007. House prices are also lower in relation to earnings with the average price currently 4.8 times average annual earnings compared with a multiple of 5.8 in 2007, Halifax said.

Martin Ellis, Halifax’s housing economist, said: “There is little sign of the excessive behaviour associated with a house price bubble at present. There has been no evidence of acceleration in house prices over the past six months with prices rising at a quarterly rate of around 2 per cent consistently throughout this period.

“Another year of similar price rises to those in 2013 next year would not be sufficient to create a bubble. In contrast, there were double digit percentage increases each year between 2001 and 2004. Overall, prices increased by 150 per cent in the eight years leading up to the house price peak in 2007.”

Unsurprisingly, London has led the house price recovery, but Mr Ellis says there are signs that the improvement is becoming more broadly based with much of the country now recording price rises.

He said: “We expect the regional pattern to be more even in 2014 with all regions experiencing price gains. On a regional basis, it is only London where prices relative to incomes, appear higher than long-term averages to any significant degree. We expect this factor to act as a constraint on house prices in the capital, leading to a slowdown next year.”