House prices set to rise?

The UK property market has hit the bottom and will begin to turn around ahead of Christmas, it is claimed . But the recovery will be slow rather than a return to boom and bust, according to the Centre for Economics and Business Research.

A separate study published  by the Institute for Public Policy Research calls for measures to prevent house price bubbles. Mortgages should be capped at 90% of property value, it says, with loans limited to 3.5 times household salary.

Reckless lending in the past by banks and building societies, with loans of up to 125% and five times salary, triggered the property surges that have been disastrous for the economy.

CEBR chief executive Douglas McWilliams said: ‘We still believe house prices will fall this year, although there are signs that prices will stabilise over the second half of the year.

‘We think the market is currently close to the bottom for the UK as a whole and there are signs that prices will stabilise over the second half of the year.

‘The main factor driving up prices is the shortage of available housing which has already pushed up rents.

‘Housing completions fell to only 130,000 in 2010, well below the level required to keep pace with demographic change.’

Mr McWilliams suggested London prices rises will remain ahead of the rest of the UK.

‘With the pound forecast to remain low, and London likely to remain internationally attractive, this is likely to continue to boost house prices in the capital, which are forecast to rise about 2% a year faster than for the UK as a whole,’ he said.

‘But the factors that will ultimately drive up house prices again are the loose monetary policy that will accompany the Government’s deficit reduction and the ability of banks to lend again on consumer-friendly terms as their own underlying financial position improves.’

He added: ‘This should not be confused with boom and bust. We are forecasting a gradual four-year recovery at an annual rate of about 4%.’