House Prices Rising But Market Wont Overheat

UK house prices are on the rise, with activity picking up significantly over the year. However, as values increase and lending becomes incentivised, there is a fear that the market will overheat.

UK house prices are on the rise, with activity picking up significantly over the year. However, as values increase and lending becomes incentivised, there is a fear that the market will overheat. With memories of the recent crash more than fresh in the mind of property professionals and investors, it is understandable that people are eager to avoid this at all costs. Yet Savills now claims the market will stay on the right side of the temperature gauge.

The firm says UK house prices will average 18.1 per cent growth by the end of 2017 compared to the 11.5 per cent anticipated when forecasts were originally published. This means that values will broadly keep pace with inflation, rather than falling in real terms. This is thanks to government intervention, improving customer confidence and low interest rates. In 2013, it is expected prices will rise by 3.5 per cent, against the original 2012 forecast of 0.5 per cent. Help to Buy has helped to pick up the pace of growth, ensuring the average price will surpass the 2007 peak by 2015.

Lucian Cook, director of Savills residential research, said: "A combination of low interest rates and stimulus measures means there is capacity for improved price growth over the next three years or so. But it comes at the price of later price growth in 2016/17 when interest rates are expected to start rising. Overall, this means that on an inflation-adjusted basis our revised forecasts indicate that prices will increase by just 2.3 per cent over the next five years."

Mr Cook added that claims government schemes could create a price bubble are "overstated". This is because of the conditions attached to the scheme and the state of the wider market. What's more, increased activity is the result of increased turnover of existing debt, opposed to the creation of new debt that defined the years leading up to the last peak.

- Monday 22 July 2013

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