House prices: What can we expect in the next few years?

House prices: What can we expect in the next few years?

The UK’s property market has always been a little volatile.  But in more recent years buyers haven’t really been facing a gamble when choosing to invest in property – property has been seen as a pretty safe bet.  The only real question people have needed to ask is “how much more will my house be worth in five years time?” Some experts claim this boom can’t continue and as prices have continued to rise year on year, many people have been guessing as to when growth is likely to come to a halt. After all, it’s become common place for today’s thirty somethings to still be in the rent trap, with the average age of first time buyers around 36 (a rise of eight years since the 1960s). This has led to calls for government intervention to calm the market – with pundits claiming the market can’t go on in the same fashion unless there’s change.

On the other hand, many so-called ‘property gurus’ predict that house prices will continue to rise for at least the next two years and expect momentum to slow around 2017. In the last 12 months alone we have seen prices rocket by 10.2 percent nationally and prices in London soar by a staggering 19.3 percent.  This makes the typical London property worth about half a million pounds in today’s property market.  Aiding this surge in property prices is the influx of foreign buyers and would-be developments aimed at the super rich, the most recent of these occurring in Westminster when the former Brazilian embassy was sold off to make way for one luxury pad.

Generally it’s believed that prices will continue to rise until 2017, when things are expected to calm when the full impact of the interest rate hike will be known.  Mortgage lenders are already stress- testing potential buyers to see if their finances could withstand a bashing of a seven percent rise.  Currently the average cost of a home for first-time buyers in England is around £204,000 and some are even speculating that prices will climb by 33 percent in the years leading up to 2020 – a six percent jump annually.  It’s assumed that today’s prices are linked with the low cost of borrowing, as in 2008 interest rates were at five percent, but in the last five years the Bank of England’s base rate has been stuck at a miniscule 0.5 percent, leading to a boom in prices after 2007’s slump.  Also blamed is the rapid population growth and the government’s Help to Buy scheme.  This gives prospective buyers interest free loans and provides lenders with a government guarantee that they won’t lose money on mortgages taken out by riskier borrowers.  The scheme can be used to buy houses worth up to £600,000 and shows how much the government wants to ensure the housing market remain buoyant – there are votes in it after all!

Those living in London and the South East are used to heated surges in property prices, but this boom in the market has been spreading north.  This year they rose by 5 percent and are expected to do so for the next five years.  But despite this ongoing increase the north/south divide is still very prominent with the average cost of a property on the market today put at around £150,000.

When it comes to property prices we can only wait and see as to how things bear out. The General Election next year is also likely to throw some light on the issue. However, one thing’s for sure: property and its availability is going to remain a contentious subject for some time to come.