House prices to surge 40%?

The average house price in England will break the £300,000 barrier in five years time, according to new research by social housing pressure group, the National Housing Federation. And in London it will have soared from its current level of £318,864 to £478,300.

The case for 70,000 new social homes a year - outlined in the recent Housing Green Paper - includes new projections from Oxford Economics which show that prices will rise by 40% over the next five years. A housing market crash is unlikely even though home ownership will move even further out of the reach of many first time buyers.

There will be an initial slowdown in the housing market as interest rate rises start to bite: property inflation will ease to around 2% over the next two years.

But from 2009 house price inflation will shoot to 10% a year as lower mortgage rates and a continuing housing shortage trigger another boom. This will leave the average house price in England at £302,400 by 2012.

This is likely to put increasing strain on social housing, as more and more people turn to housing associations to help them find an affordable home. The NHF say it's vital the Government stands by its housebuilding promise.

The average house price in England last year was £206,594, nearly 11 times average earnings, following property inflation of 7.5%. House prices meanwhile have risen by 135% since Labour came to power in 1997 while incomes have gone up by 35% in the same period.

In two areas - Kensington & Chelsea and South Buckinghamshire - house prices are now more than 20 times local average incomes. And in only seven areas across England do the cheapest homes cost less than four times average earnings (broadly what a mortgage lender will now lend): Barrow, Burnley, Hartlepool, Kingston Upon Hull, Pendle, Stoke on Trent and Wansbeck.

06 August 2007 © Moneyextra.com

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