Property poised for blast-off

New report claims house prices will have risen by 20 per cent in two years' time

House prices will rise by at least 10 per cent next year and a further 10 per cent in 1998, the first sustained period of gains since the market crashed in 1989, according to a new report due out tomorrow.

The recovery will be fuelled by a long-term reduction in the cost of mortgage repayments, allowing home buyers to borrow higher multiples relative to their earnings.

London and the South-east will see even higher rises, reaching up to 15 per cent before tailing off in 1998. By contrast, Scotland, Wales and the North of England will average between 6 and 8 per cent next year.

The report by Rob Thomas, a leading housing expert at UBS, the Swiss banking group, warns that prices could rise even further: "With housing seriously undervalued by any historical comparison, the market's new-found confidence will fuel a rapid `catching-up' period.

"There is a danger that this catching-up period will rekindle speculative buying and push house prices above their multiple long-term earnings. This would involve much higher price rises than in our forecast."

The number of house sales will also reach 1.7 million a year by 2000, a rise of 50 per cent compared with the total of 1.1 million in 1995.

Mr Thomas's bullish estimates come in the wake of a sustained housing market, which has pushed the average increase in prices over the past 12 months to more than 7 per cent. They are also ahead of nearly all other predictions for property inflation next year.

Earlier this year, Legal & General, the insurance company, issued a report arguing that prices would rise by 42 per cent in the next five years. But it claims that the rise would be more pronounced in later years than in 1997 and 1998. The Halifax expects prices to go up a further 7 per cent next year.

Last year, many experts had predicted rises of no more than 3 to 5 per cent for 1996, arguing that the watchword for the 1990s was of home buying for "nesting not investing".

The lessons of the housing crash in the past five or six years meant few people would be prepared to consider property as a speculative investment, while today's low inflation climate dampens demand for housing.

But Mr Thomas's report argues: "Houses are costly and volatile assets. Few buyers can afford to ignore the investment element and just treat them like any other consumer durable.

"The main difference between the speculative days of the 1980s and today is that those who bought in [that period] found that like all other investments, [housing's] value can go down as well as up."

It adds that the October 1987 stock market crash, painful as it was, has not prevented investors from returning to the market.

The report points out, however, that housing operates in a cyclical market and that after several years of growth - giving cumulative growth of 46 per cent up to 2001 - prices will dip slightly.

The housing market has embraced a boom bust mentality since the end of the war. From 1948 to 1957, house prices fell 30 per cent, when inflation was running at 3.9 per cent. However, for the 16 years to 1973, prices rocketed 167 per cent, or 6.3 per cent a year - well ahead of annual inflation of 4.3 per cent. The subsequent crash saw prices fall 33 per cent in four years - when inflation averaged 18.9 per cent. And in 1982 to 1989, prices rose 85 per cent, with inflation a more containable 5 per cent.

Mr Thomas said on Friday that his report assumes inflation of between 3 and 4 per cent each year for the next five years. The net effect will be that, relative to prices at the time, the real value of a home will have risen by about 23 per cent.

He added: "House price inflation in the past few years has been so well below historical levels that an element of catching up to more normal levels can be expected."

Mr Thomas disputed suggestions that the recent increase in prices was caused by high demand and insufficient properties on the market.

"Many of those selling houses will also be people hoping to move into new ones. It suggests turnover will continue to rise over the next few years."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent