The Centre of Economics and Business Research has predicted that annual house prices will increase in the UK by 4.7 per cent this year, compared with its earlier prediction of just 1.5 per cent.
A chronic lack of properties being put up for sale has pushed up prices in recent months and is one of the reasons behind the upward revision to the forecast.
Data published yesterday (20 July) by Rightmove revealed that the number of new sellers was down 10.6 per cent in July when compared with the same period in 2014, which the property portal said emphasises a supply crisis and a shortage of people trading up.
While the London housing market was a key driver of growth last year, CEBR expects average prices in the capital to increase by just 3.7 per cent, which is less than the rate of growth for the UK as a whole.
With housebuilding expected to continue falling short of that needed to keep pace with population growth, UK house prices are expected to increase further over the coming years.
CEBR expects house prices inflation to stand at 3.4 per cent in 2016 and 4.4 per cent in 2017.
Between 2015 and 2020, the average price of a home is expected to increase from £261,000 to £321,000 – a 23.1 per cent change.
The think-tank added that in addition to supply shortages, strengthening earnings growth and continued low interest rates are also expected to support property prices.
Last week, Bank of England governor Mark Carney hinted that interest rates could increase from as early as the turn of the year, however he emphasised that rates are expected to rise only very gradually, with the bank base rate settling at a “new normal” of 2 per cent, which CEBR said is “much lower” than pre-crisis levels.
Nina Skero, CEBR economist and main author of the report, said: “With the possibility of higher taxation on prime property and intervention in the rental market less likely, the Conservative party’s victory in the general election will likely support stronger price growth in the second half of 2015. Prices will also see a boost from the lack of fresh properties coming on the market.
“In London, average house prices are being weighed down by the prime end of the market. A strong pound which makes London property less affordable for foreign buyers and December’s decision to increase stamp duty on properties valued above £1.1m are both deterring some prospective buyers.”
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, told FTAdviser that the supply issue is the main red flag that comes from its members.
He said that the main problem is that there is a back-log of new-build to come through over a number of years.
“We are in the process of re-thinking of estimates. There is not sufficient stock, even in the second hand market. It is hard to put one’s finger on why second hand properties are not coming to the market. Demand, backed by finance, is firm and lenders have lower mortgage costs for some.”
Mr Rubinsohn added that it is difficult to see who will step up to the plate to build the “holy grail” of 240,000 houses.
Richard Sexton, director for E.surv Chartered Surveyors, told FTAdviser: “While the government should be commended for the initiatives it has launched and plans to launch in support of the housing market, the issue of price rises remains one of fundamental shortage of supply.
“Until this can be corrected, then upward pressure on prices will remain, with similar rises to those seen in the last year certainly possible.
“The issue is also a regional one. London is no longer the price rise capital of the UK, with prospective buyers priced out of the market and having to travel further to secure a property. This in turn is causing price rises in these area a classic ‘ripple’ effect.”
donia.o’loughlin@ft.com
