House prices are set to soar

HOUSE prices are to soar by at least 20 per cent to crown a hat-trick of good news for homeowners, property experts predicted last night.

PROPERTY BOOM House prices are set to soar PROPERTY BOOM: House prices are set to soar

Rock-bottom interest rates, cheap mortgages and a shortage of supply are set to fuel a “significant” new property boom.

Lenders are predicted to cut average interest rates from four to three per cent.

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Even Bank of England governor Mervyn King has suggested that the base rate, currently 0.5 per cent, will stay at record low levels for up to four years – longer than expected.

The Centre for Economic and Business Re­search predicted a typical three-bedroom semi would rocket from the predicted 2010 year-end price of £172,500 to £203,200 by the end of 2013 if the surge – from the beginning of this year – materialises.

Chief executive Douglas McWilliams said: “House prices will be notably higher in three years than they are today.” The report, the most optimistic this year, shows that the rate of house price growth will moderate in 2010.

Yet prices will still be 5.3 per cent higher at the end of the year, at an average of £172,500. During 2011, house price growth could slow to 3.4 per cent in the wake of public-sector cutbacks, and the resulting job losses.

But after that dip analysts say the shortage of new-build ­housing will drive growth of nine per cent in 2012 and a further four per cent in 2013.

The forecast come on the back of last week’s Land Registry figures showing a £12,000 rise in house prices in the past year, and Nationwide data showing the first double-digit rise in three years, with prices up 10.5 per cent in the year ending in April.

Stuart Law, chief executive of Assetz, said: “These latest figures confirm that the UK housing market is well advanced on its path to recovery. Post-election we would expect to see house prices continue to firm up as a result of renewed consumer ­confidence in the market, with a Conservative majority encouraging the highest levels of growth.”

The CEBR, meanwhile, believes mortgage rates will fall from an average of four per cent to three per cent by early 2011. The drop would be driven by renewed confidence in the money markets as Labour’s huge ­post-recession deficit is cut.

Mr McWilliams added: “We think the next rate increase, other than a temporary one to protect the pound if there is a hung ­parliament, could be as much as two years away, possibly longer. When the market realises this, new mortgage rates will fall.”

While some economists believe the Bank of England base rate will rise to 2.25 per cent by the end of 2011, Mr King himself seemed to reinforce the view that it will stay at 0.5 per cent. It was claimed that he told a senior US economists that UK interest rates would stay low. One of those present said: “The impression was they would stay low for the next four years.”

The base rate could soar to 3.5 per cent if there is a hung parliament after the General Election. But the CEBR says this would be temporary, and back to low rates within 18 months, just as they will remain if a single party wins on Thursday.

Property investment expert Sarah Barrett said: “It’s imperative that interest rates don’t rise any time soon. That would have a catastrophic effect on the housing market recovery and could see us plunge into a double dip. This would have an impact on the wider economy. Low rates help owners who are struggling.”

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