The research says that average values will keep rising beyond 2005 but in low single figures in a property market of subdued turnover. This process will see a steady realignment of house prices and household incomes over the next two to three years.
FPD Savills head of residential research Richard Donnell says this has been the result of the very strong growth in house prices over the last three years, making the housing market more sensitive to changes in interest rates.
He compares the current market to 2000 when rates rose from 5 per cent to 6 per cent over a six-month period. This led to prospective buyers delaying buying a property as they waited for a clearer indication of where interest rates would go.
FPD Savills forecasts interest rates to remain at around 4.75 per cent until the middle of 2005 which means households will have limited potential to push average values much higher.
Donnell says: “If interest rates move down faster than currently expected, then the likelihood is that values will rise by closer to 5 per cent than the 2 per cent that we are currently forecasting.”