UK house price growth to moderate

KUALA LUMPUR: UK house prices are expected to grow 4% in 2010, moderating to 2% in 2011, according to a residential property forecast report released by real estate consultancy Cluttons UK released in August 2010.

“The start of a steady rise in interest rates and a fall in public sector jobs, leading to stagnant employment growth, are expected to hold back values,” it said.

House price growth in 2010 has so far exceeded expectations. “We now expect a growth of 4% over the year with the rate moderating slightly in the latter half of the year,” it said.

Central London house prices are expected to see capital values rise 5% over 2010 and then 3% in the next year.

“In Central London we have seen house price growth slow to almost a standstill in recent months,” Cluttons explained. “Prices stand at around -11% below their 2007 peak, and buyers are proving unwilling to keep pushing values upwards.”

The report stated that the 2011 growth for Central London was expected to exceed 3% but as the “current nervousness regarding the economy starts to subside”, price growth will be constrained.

Alternatively, rental values in Central London bounced back in the 1H2010 due to the lack of supply and increased demand as companies step up their recruitment activities.

“Landlords seeing the strong price rise in the sales market over the past year have switched their properties over to that market, in the hope of taking advantage of prevailing conditions,” the report explained.

“As a result we are now forecasting rental growth of 10% for 2010. In 2011, we expect rental growth to moderate to 2% over the year, as many vendors in the sales market fail to realise the sales values they hoped for and move their stock back to the lettings side. The increase in supply will serve to constrain rental value growth.”

The rental market is expected to grow as owner-occupation has become increasingly out of reach of many households in the UK. “We expect this trend to continue, with increasing levels of mortgage regulation likely to constrain any return to the lax lending policies of the past.”

The UK economy is expected to have a GDP growth of 2.4% for 4Q2010, the report said, with a slowdown in 2011.

Employment levels are expected to fall 0.7% this year and in 2011 only a marginal growth of 0.8% is expected, “as cuts in Government expenditure balance out the burgeoning private sector recovery.”

“The outlook for interest rates has softened since the last set of forecasts. The base rate is now expected to stay at 0.5% until mid-2011, before rising slowly; not hitting 4% until the end of 2013,” the report said.

The average mortgage rate is expected to have hit 3.6% by the end of 2010, having started the year at around 4%. By the end of 2011, average mortgage rates are expected to hit 4.3%, as market-wide interest rates start to rise, the Cluttons report revealed.