The think tank, Centre for Economics and Business Research (CEBR), has predicted that house prices will rise by 14% over the next four years.

The new report from the CEBR predicts that by 2015 the average house price in the UK will be £200,000, a steep rise from the current average of £200,000. The last peak in house prices was in 1997 when the average home was value at £191,200.

The CEBR has downgraded its previous forecast; in May it suggested that house prices would rise 16% by 2015.

Lack of demand

The CEBR has cited lack of supply as the main driver for the predicted rise in house prices.

Shehan Mohamed, an economist for the CEBR, said: “We forecast an average of 110,000 new homes to be built every year over the medium term.”

“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.”

U-turn

Should the CEBR be right in their predictions it would represent a significant U turn for the housing market.

Recent reports have shown the mortgage lending is subdued and that despite recent short term price rises both the Halifax and the Nationwide figures show that house prices are still lower than this time last year.

Many experts believes that despite the potential under supply of housing and all time low interest rates other factors, such as the gloomy economic outlook, job security and tight lending criteria, are keeping house prices subdued.