Abbey expects house prices in the UK to rise by around 6 per cent in 2004, which will add a further £8,000 to the value of the average property of £133,0001.
House Price Growth
Barry Naisbitt, Abbey’s Chief Economist, says: "House price growth in the UK has slowed over the past year and Abbey expects that it will continue to moderate over the coming year. House prices are currently around 11 per cent higher than a year earlier. This is a marked reduction in the pace of growth from the annual increase of 25 per cent seen in late 2002. We expect that prices will rise by about six per cent in 2004, once again ahead of the rate of general price inflation."
Economic Growth
"During the course of this year, economic growth has picked up in the UK and global economies. Abbey expects that the UK economy will continue to grow steadily in 2004 by 2.50-3.00 per cent. This will mean continued high employment levels, providing a background for steady consumer spending growth. Inflation is expected to remain close to its target level and the Monetary Policy Committee will be continuing to look beyond the current year in setting interest rates.
Bank of England Base Rate
"In an environment of strengthening economic growth, it is likely that the Monetary Policy Committee will increase interest rates only modestly during 2004. By the end of next year, we think base rates could be around 4.50%; very low compared with the experience of the 1990s when base rates ranged between five and 15 per cent.
Housing Market
"Against a background of continued economic growth and the increase in base rates already seen in November, the housing market is expected to remain steady in 2004. Affordability, in terms of the share of income required to service mortgage borrowing, remains positive for the housing market. Home movers are currently seeing initial mortgage payments at just below 11 per cent compared with 15 per cent five years ago.
"At 3.75%, base rates have just risen above a near 50 year low and are well below their level just three years ago. The high level of house prices may, however, be acting as a deterrent to some first-time buyers entering the market. The sound economic background combined with anticipated trends interest rates and income prospects suggest that the slowing in house price growth already seen over the past year is set to continue."
