House prices set to rise further, but no bubble yet

Posted on December 29th, 2013 | Categories - News

House prices set to rise further, but no bubble yet

House prices are set to continue to rise in 2014, but there is no ‘bubble’ yet, according to a report from the UK’s largest mortgage lender.

In its forecast for 2014, the Halifax has said house prices will rise by 4% – 8% during 2014, whilst it expects Bank base rate to remain at 0.5% for the rest of the year.

Supported by an improving economy and low interest rates, the bank expects growth in 2014 to be broadly the same as 2013, with on-going pressure on household finances and increasing supply of housing keeping a check on prices.

Commenting on the figures, Martin Ellis, Housing Economist at the Halifax, said: “The housing market has been stronger than expected during 2013. Higher demand, combined with an insufficient rise in housing supply, has resulted in increases in house prices and higher activity this year. Low interest rates, and higher consumer confidence due to the increasing evidence that a sustainable economic recovery may now be underway, are helping to stimulate housing demand. Schemes, such as Funding for Lending and Help to Buy, also appear to have boosted demand.”

“Nationally, house prices have increased by 7% in the first 11 months of the year. Activity has also picked up with transactions likely to exceed one million for the first time since 2007.”

House prices on 2015

Looking even further forward, the Halifax predicts more subdued house price rises from 2015 onwards, with increased supply, possible interest rate rises and pressure on wages, taking full effect. It is also possible the Government’s Help to Buy scheme could also have been withdrawn by 2015.

No house price bubble

Many housing experts and even some politicians in the coalition government have voiced concerns that we are heading into another housing ‘bubble’, such as that last seen before the financial crisis. However, the Halifax says: “There is little current sign of the excessive behaviour associated with a house price bubble. The authorities are also on guard to take action in the event of signs of overheating.”

Martin Ellis, again: “Despite the recent gains, house prices remain 12% below their August 2007 peak and transactions in 2013 are still around a third below the average for 2006 and 2007. House prices are also lower in relation to earnings with the average price currently 4.8 times average annual earnings compared with a multiple of 5.8 in 2007.”