House prices in some parts of the UK could increase by as much as 8% in 2016 as the recovery that has taken hold in London ripples out across the country.
The strong jobs market in Cambridge and the area’s commuter links to London are forecast to put East Anglia at the forefront of growth, with an 8% average rise, according to the Royal Institution of Chartered Surveyors (Rics).
It has forecast a 6% rise in prices on average across the UK next year, with growth in all parts of the country. Rics said supply issues would continue to dominate the private housing market, leading to an increase in prices likely to outstrip any rises in household income.
For most of the year, Rics’ members have been reporting a dearth of homes coming onto the market for sale, and the average number of properties on agents’ books has fallen to a record low of 46. A survey found that 40% thought the lack of stock was itself the main reason sellers were not entering the market, leading to a vicious circle in the market.
The lowest level of increase is forecast for the north-east of England, where prices are forecast to rise by 3%. After East Anglia, the strongest growth is expected to be in the south-east and the West Midlands, where 7% rises are forecast. Areas with the highest number of transactions are likely to be the north-east, Wales, Scotland and Northern Ireland, where prices remain low relative to the rest of the UK.
The 6% rise would add £17,220 to the £287,000 cost of an average UK home as measured by the Office for National Statistics.
Rics chief economist, Simon Rubinsohn, said that within East Anglia strong price growth was likely to be centred on Cambridge and areas within London’s commuter zone. “To a large extent it is a reflection of the strength of the underlying economy in the area,” he said.
A year ago, Rics forecast a 3% rise in prices in 2015, but it recently admitted growth was likely to be double that. Rubinsohn said he had expected more transactions, particularly after the uncertainty of the general election was out of the way.
Looking ahead to 2016, he has factored in a 0.25 percentage point rise in interest rates during the course of the year, and said he did not expect there to be a big rise in mortgage rates. In the rental market, Rics said it expected the average cost of renting a home to go up by 3%.
“Housing has clearly leapt up the government’s agenda, but despite the raft of initiatives announced over the past year the lags involved in development mean that prices, and for that matter rents, are likely to rise further over the next 12 months,” he said.
“Lack of stock will continue to be the principal driver of this trend but the likely persistence of cheap money will compound it for the time being.
“Critically our principal concern with the measures announced by the government is that they are overly focused on promoting home ownership at the expense of other tenures.
“Discouraging buy to let could see private rents take even more of the strain if institutional investment doesn’t increase significantly, particularly given the likely reduced flows of social rent property going forward.”
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