A shortage of homes is set to ensure house prices rise faster than incomes this year, a think tank has warned today.
The Centre for Economics and Business Research has revised its estimate for price growth in 2015 more than three times to 4.7 per cent, up from its initial forecast of 1.5 per cent made in March.
The upward revision was due to “a chronic lack of properties being put up for sale” that had pushed up prices in recent months. And for once, it's not being led by London - in fact the capital is expected to see prices rise by just 3.7 per cent, as growth at the prime end of the market cools over December's stamp duty changes.
Salaries are currently only rising at an annual rate of 3.2 per cent, according to the Office for National Statistics, and economists are not expecting them to accelerate before the end of the year.
The earnings growth, which is stronger than in previous months, is also set to boost demand, further lifting house prices, the CEBR said.
It also expects interest rate rises by the Bank of England, which are expected in early 2016, to have a limited effect on tempering demand for houses.
Interest rates will only climb back up to a “new normal” of two per cent – much lower than precrisis levels of nearer five per cent, the CEBR said.
Combined with a lack of housing stock that is expected to push up UK house prices further over the coming years. Cebr expects house prices inflation to stand at 3.4% in 2016 and 4.4% 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 increase.
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 £1.1 million are both deterring some prospective buyers."
Chris Papadopoullos, Catherine Neilan