Home prices in Britain to rise 7% this year as London leaps

LONDON (REUTERS) - British house prices are expected to surge this year as a supply shortage and strong demand from overseas investors drive up the already-high prices of the London property market, a Reuters poll showed.

With the economy on the road to recovery and interest rates at rock bottom, home prices are climbing again. The poll of 27 economists and analysts, taken in the past week, suggested they will rise another 7.0 per cent this year.

"There will be more buyers, and at this stage the supply has not increased. There will be a lot of people thinking, 'I will lock in my mortgage now'," said London-based independent property market analyst Tony Williams.

The Bank of England slashed interest rates to a record low 0.5 per cent nearly five years ago, making borrowing cheap for those who can get a mortgage. It is expected to gradually raise the bank rate starting next year.

However, uncertainty over how Britain's economy will perform in coming months means the chances the BoE will move either earlier or later were "reasonably well balanced", BoE policymaker Ian McCafferty said in a Reuters interview on Tuesday.

Growing demand pushed asking prices 6.9 per cent higher in the four weeks to Feb. 8 compared with a year earlier, the fastest pace in more than six years, property website Rightmove said last week.

Some of that demand has been stoked by a government programme that backs low-deposit mortgages. Called Help-to-Buy, the scheme is aimed at making it easier for first-time buyers to own a house.

That pushed the average asking price for a home to 251,964 pounds (S$532,560), Rightmove said, more than nine times the average British salary.

Unsurprisingly, the poll concluded that the average house price was too high. It gave a consensus rating of 6.5 on a 10-point scale, where one is very undervalued and 10 is very overvalued.

In London, where a home has recently gone on sale with the highest asking price in the country, 90 million pounds, the consensus rating was 8.0. A handful of economists gave the highest possible rating, 10.

"The housing market in London is without doubt over-cooked, and that itself is largely due to lack of supply," said Mr Philip Shaw, the chief economist at Investec.

LONDON STEPPING UP

In overheated London, tales abound of optimistic buyers showing up to open-day viewings of properties, only to be disappointed to see how much house they can get for their money while competing with dozens of others prospective purchasers, some with cash in hand.

Prices in Tower Hamlets, historically one of London's poorest boroughs, were around 30 per cent higher last month than the year before, Rightmove said. But prices didn't rise at all in the north of the country.

Growth in average British prices is expected to slow to 5.0 per cent next year and to 4.0 per cent in 2016. But the slowdown will probably be overshadowed by a far more buoyant market in the capital, where prices are forecast to rise 9.2 per cent this year, 7.0 per cent next year and 5.0 per cent in 2016.

"London house-price growth is completely out of step with the rest of Britain. This dichotomy is likely to continue for the next year or so before expectations return to more sustainable levels," said Mr Gary Styles at GPS Economics.

During a decade-long boom to 2007, average house prices in Britain tripled. They fell at the start of the financial crisis.

With the housing market strong again, Persimmon, Britain's largest housebuilder by market value, said on Tuesday it would bring forward a 1.9 billion-pound planned payout to shareholders after achieving a 49 per cent jump in full-year pretax profit.

Persimmon and rivals such as Bovis Homes and Barratt Developments have been boosted over the past year by a government moves to help aspiring homeowners, which has stoked demand for newly built homes.

In the last 12 months, the FTSE 350 household goods index , comprising mostly housebuilders, has soared around 30 per cent, compared with a gain of just 8 per cent on the FTSE 100.

Bovis said on Monday it planned to have the capacity to almost double the number of homes it sells per year within the next three years.

"The housing market is recovering with higher activity levels and improving house prices," said Mr David Ritchie, Bovis chief executive.