House prices 'likely to increase by 7% a year'

HOUSE prices are likely to rise by 7 per cent this year and by another 7 per cent next year, but there is no Eighties-style boom in sight, according to John Wriglesworth, housing analyst at the stockbroker UBS and the City's expert on house prices.

Prices will continue to rise by about 7 per cent a year, he said in a report published today, but in two years inflation will have caught up, so there will be no real gains to be made on property for the rest of the decade.

The short-term recovery is already under way. House prices have stopped falling, although there are regional peculiarities.

Homes are more affordable than for more than 10 years. Typical first-time buyers would have had to spend 65 per cent of their income on mortgage repayments in 1989, compared with 36 per cent now.

Lenders are more cautious. A new buyer needs a deposit of at least 5 per cent plus the cost of moving, which may add up to pounds 5,000. There are fewer potential first-time buyers - the 23- to 29-year-old group - as the baby boomers grow up.

The report warns the Government against tampering with any recovery by imposing credit controls or tax disincentives even if prices appear to be sharply strengthening.

Robert Villiers, housing analyst at UBS and co-author of the report, said: 'Things are much more fragile than people think. If the Government did anything to put the brakes on, it would be putting the boot in.'

The Halifax Building Society, Britain's largest mortgage lender, is predicting a 5 per cent rise for 1994. David Gilchrist, general manager, said: 'We are more conservative, partly because we have seen nothing so far this year. Spring is normally the time when things pick up but people are already nervous about the tax changes.'

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