Think tank predicts the house price boom has years left

May 9, 2014 at 12:14 PM 1 comment

The house price boom will last for two years before higher interest rates slow the market, an influential think tank predicted today.

House prices 2


The average cost of a home will jump by 7.8 per cent this year and rise by a further 4.2 per cent next year, according to the National Institute of Economic and Social Research (NIESR).

But price gains will ease to just 0.9 per cent in 2016, while house prices will remain largely unchanged in 2017 and 2018 as higher borrowing costs and the end of the mortgage guarantee part of the Help to Buy scheme impacts on the market.

The Bank of England Bank Rate was slashed to just 0.5 per cent in March 2009 in response to the global financial crisis and it has remained unchanged ever since.

But the official cost of borrowing is widely expected to start rising again during the first half of 2015, and lenders have already started to price in a potential increase into the cost of their fixed rate mortgages.

NIESR expects the Bank Rate to rise to 2 per cent by the end of 2017, before reaching 4.25 per cent at the end of 2024.

It predicted that even a small rise in the mortgage rates would have an impact on consumers and the housing market, as it marked the turn in the cycle.

But it added that it expected interest rates to remain below their pre-crisis level, when they peaked at 5.75 per cent, for at least another decade.

The group said it was also not known how big an impact new tools available to the Bank of England’s Financial Policy Committee would have on the housing market.

The Treasury Select Committee also referred to the FPC in a report published today.

It said: “Housing bubbles are easy to spot in retrospect. The FPC has been given the challenging role of identifying them in advance.”

It added that the FPC had been granted a “large and varied range of tools” to address the risk, and it would be meeting in June to decide whether any of them should be used.

It said: “The Committee will take an early opportunity to secure an explanation, both to us and to the wider public, for any decisions taken.”

NIESR’s predictions come as concerns continue to mount that a bubble may be building up in the UK’s property market.

LSL Property Services and Acadata reported that house prices in England and Wales hit a new record high of £263,113 in April, after soaring by £1,200 during the month.

Typical property values are now above their pre-crisis peak in London, the South East and East Anglia.

Meanwhile, the Royal Institution of Chartered Surveyors warned that prices were being pushed higher by a mismatch between supply and demand, and this imbalance was showing signs of intensifying.

But other data has suggested that the market has already begun to moderate as pent up demand works its way through.

Halifax reported a second monthly house price decline during April, with the average cost of a home dipping by 0.2 per cent.

However, the group warned that monthly price changes could be volatile, and property values were still 8.5 per cent higher than they had been a year earlier.

Figures from the Bank of England also showed that the number of mortgages approved for house purchase had fallen for two consecutive months in February and March.

Recent gains have left the typical cost of a home in England standing at £262,770, according to Zoopla.

Entry filed under: General News, Help to Buy, House Prices. Tags: , , , , , , , .

Soaring house prices rise almost £20,000 in a year This little patch of grass earns more than an average UK salary for owner

1 Comment Add your own

  • 1. XanderMatthew  |  May 9, 2014 at 12:17 PM

    There are so many variables it’s impossible to predict these things. Only time will tell, and London is always a market of its own as well.


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