The six major UK house price indices show an average of 8.1 per cent annualised growth for the twelve months prior to September 2006. This is a 0.6 per cent increase on the previous month (7.5 per cent) and a 3.78 per cent increase since the beginning of the year (4.32 per cent).
Continued strong growth
The housing market is continuing on a strong growth path heading into the winter, as a result primarily of the continued imbalance between supply and demand and, despite August’s quarter point rise, historically low interest rates. Assetz stands by its original prediction of up to 7 per cent by the end of the year, but increases its prediction for the following two years from 5 per cent growth per annum to 8-10 per cent, as long as interest rates remain stable.
Interest rates
The Bank’s decision to maintain rates has prevented an over-zealous curb on consumer spending and inflation. Raising rates again could itself have driven demands for higher wages, causing price growth and delivering more inflation. House price growth is positive but sustainable, and a further rise this year would instil fear into homebuyers, with investors and first-time buyers in particular already feeling the pinch. Assetz believes house price growth is not an investment bubble, but is instead driven almost entirely nowadays by the Government’s immigration policy and severe local planning restrictions limiting new supply.
Average UK house price rises
The average house price, taken from the average price provided by all the six indices, is £192,787, up slightly from £192,626 in August. This shows an increase of £161 in the value of the average home in the last month, and an increase of £12,621 in the twelve months from September 2005, when the average price of a home was £180,166.
Stuart Law, managing director of Assetz, commented: “The Bank of England must be careful not to mistake the cause of house price rises over the next two years as being interest rate led. Continued high levels of immigration into the UK, driven by the expansion of the EU to include additional countries such as Poland, Bulgaria and Romania, will be the main source of house price growth in the coming years, rather than low interest rates which primarily drove price rises up until 2005.
“Continued growth will be the result of a growing imbalance between supply and demand in the UK and the lack of new homes coming onto the market to meet this demand. This is not something that the Bank of England should attempt to manage, as it would take excessively high levels of interest rates to prevent the supply/demand imbalance from driving up prices.”
