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House prices to rise at triple forecasted speed

While the London housing market drove UK growth in 2014, the capital should underperform the rest of the country this year, with prices rising just 3%.

The prime London market has been hit by last year's stamp duty reform, and has failed to recover even though the threat of a mansion tax was lifted after the Conservative election win in May.

Supply shortages will force up house prices three times faster than suggested by previous forecasts.


The Centre for Economics and Business Research (Cebr) has tripled its property price predictions for 2015 from 1.5% to 4.7%.

The economic think tank said a “chronic lack of properties being put up for sale” has pushed prices up in the last few months, forcing it to revise its figures.

If its new forecast is correct, the average UK home will be worth a record £249,000 at the end of 2015.

As new home building fails to keep up with demand, Cebr predicts that prices will rise by a further 3.4% in 2016 and 4.4% in 2017.

It forecast that the average house price will be £307,600 by the end of the current Parliament in 2020, up 23.6% in total.

Even the prospect of impending base rate hikes and rising mortgage costs are unlikely to dampen the market, it said, as the cost of borrowing will rise gradually and settle at around 2%, still much lower than before the recession.

The combination of a lack of supply, earnings growth and low interest rates is expected to support house prices.

Cebr economist, Nina Skero, said prices will enjoy 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.

Stephen Smith, director, Legal & General Mortgage Club & Housing, said the market is gaining momentum after a slow start to the year.

“The pick up in property transactions are shown by recent HM RC data signals an end to election uncertainty that caused buyers and sellers to postpone entering the market.

“However, this could be harmful to the overall health of the market, as increasing activity is likely to accentuate the current imbalance in supply and demand.”


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