LONDON: British house prices are expected to rise 9 percent this year and 6 percent next, as gains in the London market push already overpriced homes in the capital even further out of reach for many buyers, a Reuters poll found.
But the heady gains could be curbed if the Bank of England tightens monetary policy as expected, the poll of over 20 market specialists taken in the past week found.
"Given that (interest) rates have been at 0.5 percent for so long, many households will have to significantly adjust spending when rates go up," said James Kingdon at property consultancy GVA.
"There are, however, a large number of households who have taken long-term fixed-mortgage options to protect against this scenario, suggesting any negative effect will be felt further down the line."
The BoE cut its benchmark interest rate to a record low 0.5 percent in March 2009. Many assume it will be the first major central bank to raise rates - probably in the first three months of next year - and that it will follow up with regular increases.
That would make mortgages more expensive. The average asking price for a home was 262,401 pounds in August, according to property website Rightmove, down nearly 3 percent from July, but still around 10 times the average British salary.
In June, the BoE put limits on how much mortgage lending British banks could do at high loan-to-income ratios. It also imposed tighter affordability constraints on prospective home-buyers.
Until last December, annual inflation had exceeded the Bank of England's 2 percent target every month since December 2009. It has since fallen to 1.6 percent in July, but still has held firmly above wage growth.
Perhaps unsurprisingly, therefore, the poll said prices were too high. It gave a consensus rating of 6 on a 10-point scale, where one is very undervalued and 10 is very overvalued. In London the consensus was 9 - and five analysts said 10.
"Long-term housing affordability measures relative to net incomes show the current position way above long-term trended averages. This position is accentuated in London," said Mark Farmer at investment consultancy EC Harris.
London prices are expected to rise 12 percent this year, 6 percent next and 5 percent in 2016, the poll found. In a May poll the respective forecasts were 12.0, 7.5 and 6.5 percent.
Nationwide, prices are forecast to rise 4 percent in 2016. Expectations were slightly stronger for this year and next than in May's poll.
SUSTAINABLE MARKET
Home ownership has long been the bedrock of consumer wealth in Britain, and the market made a swift recovery from a slump during the 2008-2009 financial crisis, when housebuilders' reluctance to build added to a supply shortage.
However, those housebuilders have benefited from government schemes such as 'Help to Buy', which enables buyers with a small deposit to get a mortgage and has spurred the market.
Bovis Homes reported a 150 percent leap in first- half operating profit last week, just before Persimmon Plc posted a 57 percent profit rise and said it was trading ahead of last year in the traditionally slower summer period.
Still, Bovis Chief Executive David Ritchie said the company would regard an interest rate rise as the right step to a more sustainable housing market.
"If house prices (outside London) cool to something more in line with inflation, so 1 to 2 percent per annum, that would be perfect for us," he said. "That gives us the ability to run a long-term sustainable business."
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