UK house prices to reach pre-recession levels by 2016

New research from the Centre for Economics and Business Research (Cebr) shows UK house prices rising by 0.8% in 2012.

Cebr confirm a view that has remained fairly consistent for three years that low interest rates and increasing availability of mortgages will help house prices edge up over the 2012-2016 period, reaching pre-recession levels in Q2 2016.

Cebr bases its forecasts on a mix of micro and macro factors. The key micro factor is the shortage of housing relative to potential household formation. The key new micro issue is the changes in the planning regulations reannounced in the Budget. These are likely gradually to boost the supply of housing and will constrain the gentle rise in house prices.

The key macro factors are affordability, employment and mortgage availability. The first of these will be slightly positive, the second slightly negative and the third increasingly positive.

Cebr expects the mortgage famine to ease gradually as the quantitative easing already announced flows through the economy and as banks recapitalise themselves.

“House prices have been pretty stable over the past two years” says Shehan Mohamed, main author of this report “Lending for housing was £74.5 billion in 2011 and we forecast that this will rise to £109.9 billion by 2016”.

Cebr’s regional house price analysis, also included in the report, shows house prices are likely to continue to rise more quickly in the London and the South East, though the gap in house price inflation with the rest of the country is likely to close because of the 7% stamp duty and the heavy taxation on corporate home ownership announced in the Budget and because of the non-recurrence of special factors like the Arab Spring and the euro crisis which boosted the London market in 2011.

Richard Gordon of UKPI commented: “There are increasingly positive signs for the future of the housing market. I firmly believe we are off the bottom of the economic cycle and we are on an upward trend in terms of activity and prices. Now is the time for investors to take full advantage of the predicted growth.”

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