Wednesday, August 28 15:25:37
British house prices are set to rise at their fastest pace in three years in 2013, outstripping inflation and raising concerns that government action may lead to a new price bubble, a Reuters poll found today.
A government-backed "Help To Buy" scheme means borrowers can buy a home with a deposit of just 5 percent, and a narrow majority of analysts judged this stimulus should cease as the housing market is already gathering momentum.
The poll of market watchers, taken in the past week, found eight in favour of continuing the government's initiative but 11 wanting to scrap it.
"The housing market was slowly recovering already, it has been good for the sector, but in the long term it is throwing money at something that is not the solution," said Mark Hughes, co-head of research at Panmure Gordon.
"There is a danger we are creating the next bubble and not learning from what's happened previously."
House prices tripled during a decade-long boom to 2007 but fell sharply at the start of the financial crisis. Most respondents do not see them reaching pre-crash levels for some time yet.
Still, according to medians from the poll prices will rise on average 4.0 percent this year and 5.5 percent next, a sharp upwards revision from a May poll that predicted rises of 2.0 percent and 2.4 percent respectively.
In London prices will rise 6.0 percent this year and 6.1 percent next as the capital continues to draw in rich overseas investors battling for a limited supply of property.
"The UK housing market is recovering strongly on improving demand. The economic recovery is helping boost consumer confidence and reviving demand from first-time buyers and home-movers," said Melanie Bowler at Moody's Analytics.
"The London housing market will continue to outperform the rest of the country, bolstered by continued strong domestic and foreign demand."
Britain's economy is picking up speed after essentially flatlining for two years, but the Bank of England said it intended to keep interest rates at a record low of 0.5 percent until late 2016. This would be a boon for mortgage borrowers, although some could be over-stretched if and when rates eventually rise.
Bank Governor Mark Carney did not convince financial markets with the announcement, which he is expected to defend in a speech later on Wednesday, and investors are betting that monetary policy tightening will begin at least a year earlier.
Britain's consumer price inflation was running at 2.8 percent year-on-year in July, and a poll on Wednesday showed people expected it to average 2.6 percent in the year ahead. (Reuters)