2013 House Prices Hit Record and Will they Continue?

Upwardly revised Cebr forecasts show that a typical house in the UK is expected to cost £225,000 in 2013, 2.9% higher than in 2012 and a record high. By 2014, the leading economic forecaster expects the typical UK home will cost 234,000, up 3.9% on 2013.

Despite concern in some quarters, the housing market is being driven largely by fundamentals – demographics and the economy – not speculation. Talk of housing bubble is premature.

A slowly recovering economy, the domestic population’s need for homes, slow supply growth and improving credit availability are all supporting house prices. Even London’s prodigious house price growth, expected to be 6.9% this year, is being driven by the fundamental fact that people want to live in the capital with its employment and cultural opportunities.

Policy drivers will continue to provide a boost. As of October 2013, three months earlier than initially planned, potential homebuyers will be able to apply for assistance from the Help to Buy scheme, which will provide up to £12billion of mortgage guarantees. We expect this will lift house price growth by increasing the availability of mortgage financing. The Bank of England’s Governor has said base rates will be kept on hold until unemployment falls below 7.0%, suggesting rates are unlikely to rise before 2016. This forward guidance should anchor mortgage costs and so support house prices.

The housing market recovery is firmly established in London and the South East, where house prices are forecast to rise by 43.5% and 27.7% respectively over 2013-18. The economic recovery and country-wide policy measures which support mortgage lending mean the recovery is now spreading beyond these regions. In the East of England and Scotland house prices are forecast to rise by 27.6% and 27.5% respectively over 2013-18.

Even in Northern Ireland, where house prices have halved since their Q3 2007 peak, there are signs of life. House price falls in Northern Ireland have been slowing since early 2011 and house prices there posted an annual gain in Q2 2013 for the first time since Q1 2008.

Daniel Solomon, Cebr Economist and main author of the report, said: “Government support and an improving economic climate will provide an invigorating shot in the arm for the housing market over the coming years.

“This is not a case of houses being built on the sand. The housing market recovery we are seeing rests on firm economic and demographic foundations – at least for now. Talk of a house price bubble is premature.

“Northern Irish house prices have recently posted their first annual gain in years and the housing market recovery is finally moving beyond London and the South East. This should make home owners up and down the country feel that bit wealthier, supporting consumer confidence.”

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