House prices are set to rise by 13 per cent over the next five years following a bumper 2021, according to Budget forecasts.
Earlier this month, Advantage wrote that Rightmove had reported rising prices for all types of housing in all regions for the first time in 14 years in its latest survey, and according to The Office for Budget Responsibility (OBR) house prices are likely to continue to rise for the next five years.
House price predictions revised upwards
The OBR said property values were on course to rise by 8.6 per cent this year – significantly faster than previously expected. And prices are expected to rise every year to the end of its forecast in 2026.
In March, the OBR predicted that prices would fall in 2022 before returning to growth in 2023.
But it now believes this outlook was too pessimistic following the surge in property values during the coronavirus crisis. The pandemic caused a ‘race for space’ as families looked for bigger homes after months of lockdowns (one of the factors Advantage has written about previously when considering the key elements driving rising prices).
Prices rise ‘far beyond’ levels anticipated by the OBR
Low interest rates for mortgages and built-up savings caused a boom and the stamp duty holiday compressed it into just months, the Government’s spending watchdog said yesterday.
The OBR said the boom pushed house price rises ‘far beyond’ what it would have expected as they hit record highs in June.
It updated a March forecast which said prices would fall 1.7 per cent in 2022, saying instead they will rise by 3.2 per cent.
Figures last week showed house prices rose £25,000 in a year between August 2020 and this year. The average home cost £264,000 in August, the Office for National Statistics (ONS) said, close to the record in June of £265,000. It meant house prices had jumped by more than a tenth in the year, one of the biggest rises recorded.
The ONS said the housing market was returning to normal after a period of heightened activity during the pandemic and the stamp duty holiday.
Advantage’s view: The latest projections from the ONS suggest that while we are unlikely to see the kind of sharp house price growth that we’ve seen in 2021 in the coming years, we are still likely to see sustained growth – just at a more gradual rate. As we’ve written previously, it seems that the majority of factors driving house price growth (with the exception of the stamp duty holiday) remain in place, so are likely to continue to push up prices over the coming years.
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