Continued sharp rise in house prices
Prices to rise 15½% in nominal terms and 7½% in real terms by end-2017
We expect the recent trend to continue, although the pace of the increase will probably ease somewhat. We forecast a nationwide increase of 7½% in real terms and 15½% in nominal terms by the end of 2017.
According to our forecast, the main factor in favour of a continued rise in house prices is a handsome increase in real disposable income, triggered by wage rises in excess of inflation during the forecast horizon and an increase in total hours worked. The effects of the Government’s indexed mortgage adjustment measures will be greatest in 2015. We expect nominal and real price increases to lose momentum over the course of the forecast horizon, as the effects of the debt reduction package taper off and growth in real disposable income eases.
Steep rise from 2010 trough
Major driver of inflation
Price rises differ by housing type and location
No signs of a bubble
Prices rise in excess of building costs, and new construction is picking up
House price forecast included in monthly inflation forecast
Each month, we prepare a forecast of developments in house prices and publish it as part of our inflation forecast. As such, the forecast above is a part of our last inflation forecast, published on 9 April.