UK house prices to hit new all-time high in 2015

House pricesUK house prices are set to hit a new all-time high in 2015, the Centre for Economics and Business Research predicts.

The think tank says prices will climb by 14% over the next 4 1/2 years - slightly less than the 16% growth it forecast in May. A typical home will be worth more than £200,000 by 2015, up from £176,000 at the moment.

While the CEBR is not predicting another housing boom, prices will be pushed higher by the housing shortage, a gradual improvement in the availability of mortgages and a long period of low interest rates.

This year, however, the CEBR sees house prices falling by 1.4%.

House building is expected to remain depressed for the next four years and thereafter - with population growth and more people living alone there is likely to be an increasing shortage of accommodation. This is likely to raise house prices, making home ownership less affordable and placing further pressure on the rental market.

Levels of home-ownership are currently at 68%, indicating a small fall from their peak of 71% in 2000. This is likely to drop further as more would-be first-time buyers enter the rental market.

"We forecast an average of 110,000 new homes to be built every year over the medium term says Shehan Mohamed, economist at the CEBR. "This is significantly lower than the 225,000 homes that need to be created every year to keep pace with current housing needs, population growth and the trend towards reduced household sizes."

Meanwhile, with world markets in turmoil and the US and eurozone embroiled in debt crises, UK interest rates are unlikely to rise above 2% before 2015. Mortgage rates are likely to remain close to their current levels and could fall if the Bank of England embarks on a fresh round of quantitative easing.

So despite very sluggish household real disposable income growth, house prices are likely to drift upwards.

"We do not expect a house price boom," says Douglas McWilliams, the CEBR's chief executive. "But the housing shortage is likely to push prices gently upwards. Because we have revised down our forecast for economic growth from 2012 to 2015, we have also cut our forecast growth in house prices to 2015 from 15.8% to 14%. By 2015, our updated forecast price for the average house is £200,700. The previous peak level was £191,200 in 2007."
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