Average UK home prices set to pass 2007 peak next year

The average home in the UK will cost £227,000 in 2014, surpassing the pre-crisis peak for the first time, and reach £267,000 by 2018, according to a new forecast. Also, the Help to Buy scheme announced recently by the UK government could initially raise prices before increasing housing supply, says the forecast from the Centre for Economics and Business Research (CEBR).

CEBR also predicts the average home price will be £222,000 this year, 1.4% higher than in 2012, but just under the peak achieved immediately prior to the financial crisis. In the short term, lacklustre wage growth, domestic banks’ ongoing recapitalisation efforts and Eurozone financial unrest are expected to subdue house price growth this year and next. Thereafter, a strengthening economy will lead to rising wages, while population growth is projected to outpace housing supply increases.

It predicts that these two market fundamentals will lead to accelerating house price growth over the medium term. By 2018 a typical UK home will cost £267,000, as house prices rise by 4.6% over that year – in 2018 UK house prices will be 20.4% higher than this year. The organisation says that the Help to Buy scheme which is aimed at assisting buyers in getting on, or moving up, the housing ladder, is also set to stimulate supply growth as home builders respond to higher prices.

It has not included the impact of Help to Buy in its central house price forecast because the scheme’s details have not yet been fully disclosed. However, it has formulated a back of the envelope, stand alone estimate of its likely impact on housing supply and prices over next few years.

Quote from PropertyCommunity.com : “A new multi billion housing package has been announced in the UK aimed at boosting the struggling residential real estate market. Some £3.5 billion will be made available to help first time buyers get onto the housing ladder and also others who are struggling to save the large deposits that lenders currently require.”

In 2014 it estimates that the scheme could raise prices by up to 0.8% without having any appreciable impact on housing supply. In 2015 it expects that home builders will respond to the higher prices which the scheme brought about in 2014. This means that in 2015, the Help to Buy could lead to an additional 4,800 homes being built. ‘By 2018, we expect the typical UK home will cost £267,000, over 20% more than this year. Gradual wage and population increases will be the fundamental drivers of this medium term trend,’ said Daniel Solomon, CEBR economist and main author of the report.

‘We expect the Chancellor’s new Help to Buy scheme will push up house prices before it raises housing supply. The scheme’s effects will be quite modest, but it could support the construction of roughly 5,000 new homes in 2015. This supply boost could provide a welcome route on to the housing ladder for a small number of aspiring home owners,’ he added.