House prices to jump 6% in 2010
House prices are set to rise by a fifth in the next four years as mortgage availability improves and interest rates stay low, according to new research.
Average prices should grow more than 6% in 2010 before slowing next year and then rising again in 2012 and 2013, according to a study by the Centre for Economic and Business Research (cebr).
The think tank also estimates that mortgage lenders will approve 90,000 home loans a month by 2013 from current levels of about 60,000 a month.
"This is still some way short of pre-credit crunch levels of mortgage lending, but will likely lead to a sustainable growth path for house prices over the medium term," the report says.
The cebr also expects interest rates to remain on hold at 0.5% until mid-to-late 2011.
This, along with higher levels of home loan approvals, a shortage of new properties and slower-than-expected rises in unemployment, will continue to push prices up during 2010, albeit at a more modest rate than in the last six months.
The cebr does expect house price growth to falter in 2011, as spending cuts hinder economic growth, with related rises in joblessness. However, the shortage of new homes will lead to more growth in 2012 and 2013.
Ben Read, managing economist at cebr, says it has revised its house price forecast in light of approvals recovering more quickly than expected.
"Looking forward beyond this year, we envisage a tough 2011 with house prices levelling out as government action to cut the deficit puts the brakes on demand,” he adds. “However, supply side pressures will reassert themselves in the medium term."
New figures from the Bank of England show net lending for property (both purchase and remortgage) rose by £1.2 billion in December, down on the £1.6 billion rise seen in November. However, it is a jump on the six-month average of £0.9 billion.
The number of loan approvals for house purchase fell from 60,045 in November to 59,023, but was again above the previous six-month average (55,004). Remortgage approvals increased in December but remained below the previous six-month average.
Elsewhere, building societies report a 15% increase in lending between November and December.
Paul Broadhead, head of mortgage policy at the Building Society Association, says the rise in lending could be down to buyers keen to complete transactions before the end of 2009, in order to beat the removal of the stamp duty holiday.
He adds that, despite this rise, total gross lending in 2009 was only half of that in 2008 and it is likely to remain at low levels until funding conditions improve.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.