UK home prices are expected to rise 1% this year and next - Cluttons

It also expects the extension of the 0% stamp duty cut-off point to £250,000 for the next two years to help support demand from first-time buyers, but the extension will pull demand forward rather than create much “real” new demand, it said.

“Therefore, we expect a slight weakening in demand from April 2012, exacerbated by the fact that the cost of high loan-to-value mortgage lending is unlikely to have improved greatly, with many potential buyers still excluded from home ownership.

“We expect sluggish growth over 2012 to 2014 of just 3% per annum, although as stated in our previous forecast there will be significant variation above and below this across regions and property types,” the report stated.

Cluttons also expects the margins on mortgage lending to reduce as credit conditions ease and competition in this market begins to improve. The margin reduction, the research house said, would help to limit the effect of the rising base rate and moderate its negative impact on house price growth.

The cost of high loan-to-value lending (above 75% LTV), however, will remain high relative to the rest of the market, it added.

It also forecast that the UK base rate and mortgage rates would increase more slowly than previously thought.

Zoom into Central London, Cluttons expects a price growth of around 6% there this year, with an improvement on current sentiment over the course of the year.

“In 2011, as market-wide prices start to get within touching distance of their previous peaks, we expects moderation in growth to 4%. In recent months, the appetite for a ‘global bank tax’ has gathered pace, led by the IMF, and we expect some downward effect on price in the longer-term. Consequently, we have moderated our outlook for the period 2012 to 2014 to growth of 5% per annum,” it added.