The UK’s Office for Budgetary Responsibility (OBR) has revised its forecast for house price growth for the next five years 15% to 27%.
According to the OBR, an independent fiscal body, growth of 3.7% is expected in 2013/2014, some 5.8% in 2014/2015, 7% in 2015/2016, 4.2% in 2016/2017, 3.7% in 2017/2018 and 3.8% in 2018/2019.
The OBR also expects transaction volumes will rise at a faster pace than originally forecast over the coming five years. It estimates that housing transactions in 2014/2015 will be 1,280,000 some 12% higher than it originally forecast in March.
‘The housing market has picked up more strongly than forecast this year. House prices increased by 3.8% in the year to September while the volume of property transactions was up 22.6%,’ says the latest OBR report.
‘Our house price inflation forecast has been revised up significantly, reflecting the momentum in house prices this year and supportive mortgage financing conditions. We expect house price inflation to be above 5% in 2014 and 7% in 2015. Relative to our March forecast, we have revised the level of house prices up 10% by 2017/2018,’ it adds.
Liam Bailey, head of global research at property firm Knight Frank, said that the new forecast largely concurs with its latest analysis which predicts that average UK house prices will rise by 7% in 2014 and there will be cumulative growth of 24% between now and the end of 2018.
He pointed out that the dual impact of the Help to Buy scheme and the strengthening economy will support notably higher price growth in 2014 and 2015.
‘The OBR’s view of five year house price growth to 2018 has been revised up from 15% to 27%, compared to our view of 24%. Critically, in terms of the health of the market, the OBR has revised its view of housing transactions, with a 12% upwards revision for both of the next two fiscal years, this growth is undoubtedly based on an assumption that the current market recovery will continue to spread into the Midlands and Northern regions,’ explained Bailey.
The OBR noted that the growth in residential investment had left household finances in deficit and the gross debt to income ratio rising. Its report said that was consistent with low interest rates and schemes such as Help to Buy but ‘may pose risks to the sustainability of the recovery over the medium term’.
Also, the OBR's latest house price forecast, while higher, still has real house prices 3.1% lower in 2018 than at their peak in 2007.
The OBR also points out that the government’s coffers will receive a boost from the buoyant housing market with revenues from capital gains and stamp taxes forecast to increase.
‘Our forecast for stamp duty land tax (SDLT) is much higher than in March. We now expect receipts to almost double over the forecast period, from £8.9 billion in 2013/2014 to £16.8 billion in 2018/2019,’ the report says.
This means that by 2017/2018 higher house prices will contribute around £1.8...