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Low Interest Rates do not Mean House Prices Will Continue to Boom

LONDON-An estate agent has broken ranks to say that property prices are rising too fast and predicts that the market will drop to show overall growth this year of just 5%

By Charlie Jacoby | Updated on May 01, 2002

LONDON-House prices are surging ahead again but the burning question is how long can this last? Estate agent FPDSavills says that, while low interest rates have greatly enhanced affordability, the prospect of slower growth in incomes and the impact of higher interest rates later in the year on non-mortgage consumer borrowing should restrain the upward pressure on values.

Overall, FPDSavills Research expect the rate of house price growth to slow to 5% by the end of 2002.

Values are rising at somewhere between 14% and 16% per annum and are now some 52% higher than they were at the peak of the boom in 1989. “Ultimately this strong growth in house prices is the result of a major imbalance between supply and demand in the UK’s housing market”, says Richard Donnell, head of residential research at FPDSavills. “Strong levels of employment growth and rising household incomes have also greatly increased the demand for housing. This, together with the UKs chronically low level of new house build, the lowest per capita rate in the western world, has resulted in the strong growth in average house prices”, he adds.

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