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Capital Economics predicts 5% house price rises as it reverses forecasts

Capital Economics has drastically changed its house price forecasts to 5 per cent growth in both 2014 and 2015 after predicting a fall of 3 per cent next year just a few months ago.

The economists, known for their pessimism on UK housing, are also predicting house prices rises of 6 per cent this year and attribute the changed forecasts to the Help to Buy scheme.

In January the firm predicted a 5 per cent drop in house prices this year, followed by a further 3 per cent drop in 2014.

Capital Economics does not believe Help to Buy will boost transactions and its primary result will be price rises.

The firm believes London will continue to outperform the market but expects prices to rise across all regions.

In the long-term, it predicts the north will outperform the south because houses are more affordable.

It also argues mortgage rates have “bottomed out” while rent increases will be limited to 2 per cent increases in the next two years due to squeezed household budgets.

It states: “The growth in mortgage lending so far has been concentrated among first-time buyers as those who perhaps do not need the Help to Buy scheme have rushed in to beat the expected surge in demand.

“But, if anything, the rise in lending has been subdued given the jump in demand, reflecting the fact many lenders are still not looking to expand their mortgage books rapidly. Indeed, net mortgage lending has yet to show any recovery at all.”

The Telegraph reports monetary policy committee member Martin Weale warned the Treasury select committee yesterday that house prices are “elevated”.

He said: “People who are taking on mortgage debt do need to be sure they can afford to look after it even if interest rates return to what we regard as more normal levels.”

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  1. On 14th August you published an article by the same firm saying that the Help to Buy MIG scheme was going to be a flop!!!!.

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