4% annual growth rate forecast for house prices in 2006, 2007: RICS

4% annual growth rate forecast for house prices in 2006, 2007: RICS

	Published : Sat, 17 Dec 2005 14:05 By : David Simms Print this Story

LONDON: House prices are expected to grow at the annual rate of 4 percent over the next two years, according to housing industry experts.

The prediction was made by the Royal Institution of Chartered Surveyors - a leading group of estate agents which had accurately predicted 3 percent housing inflation growth for 2005. The group based their calculations on the impact of the cut in borrowing cost in August as well as another likely cut in interest rate over the next six months.

The Bank of England’s Monetary Policy Committee could possibly repeat the .25 percent reduction in order to support the slowing rate of economic growth, RICS said. The lower borrowing cost would also lead to an increase in mortgage approvals from 1.13 million (the lowest in five years) in 2005 to 1.34 million next year.

The lowered borrowing cost and a healthy employment figures contributed largely to the growth in house prices this year. The trend is certain to continue in 2006, the group said.

There were other forecasts from the property market which did not quite match RICS’ optimism. While Nationwide Building society expects property prices to rise between 0 percent and 3 percent, Hometrack expected a 1 percent decline in house price inflation. The Council of Mortgage Lenders expect house prices to grow at 2 percent over the next two years.

Many analysts had expected a correction in the coming months. Their concern echoed the warning by the Organisation for Economic Cooperation and Development, a Paris-based thinktank which said that UK property prices were seriously overvalued.

In recent months, the housing market proved all doomsday warnings wrong by slipping into a soft landing. The RICS’ forecast now promises a modest recovery over the newt two years. Already, the market has been showing signs of stirring back to life. However the problem of affordability may continue to dog first time buyers for some more time. Couples wanting to buy their first homes could still find it difficult to get onto the property ladder in the coming months.