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Think-tank: the price of homes to jump 20pc

HOUSE prices are set to rise by a fifth in the next four years as mortgage availability improves and interest rates stay low, although 2011 is expected to be tough, a survey showed.

Average prices should grow more than six per cent in 2010 before slowing next year and then rising again in 2012 and 2013, according to a study by the Centre for Economics & Business Research (CEBR).

Mortgage lenders are likely to approve 90,000 home loans a month by 2013 from current levels of about 60,000 a month, the CEBR’s Consumer and Housing Prospects report showed.

“This is still some way short of pre-credit crunch levels of mortgage lending, but will likely lead to a sustainable growth path for house prices over the medium term,” the report said.

The CEBR expects interest rates to remain on hold at 0.5 per cent until mid-to-late 2011.

The group said house price growth will falter in 2011 as cuts hinder economic growth, with related rises in joblessness, although the current shortage of new homes will lead to more growth in 2012 and 2013.

The CEBR said higher levels of home loan approvals, a shortage of new properties, low interest rates and slower-than-expected rises in unemployment would continue to push prices up during 2010, albeit at a more modest rate than in the last six months.

CEBR managing economist Ben Read said mortgage approvals recovering more quickly than expected were behind the group’s revised forecasts.

“Looking forward beyond this year, we envisage a tough 2011 with house prices levelling out as government action to cut the deficit puts the brakes on demand. However, supply side pressures will reassert themselves in the medium term.”