Property prices in the UK not to reach peak levels until 2019

The UK property market is experiencing its longest recovery mode and property prices are unlikely to hit the record high of 2007 until 2019, say property analysts. Although the property prices continued to peak in the prime areas of central London, the rest of the UK experienced property price fall.

The level of transactions in the UK housing market was seen to be less than 50% of the market peak in 2007, and the transactions are 35% below the 20 to 30 year average. Property price rise has been supported by low interest rates, and with the UK economy’s continued struggle, it is unlikely that the interest rates would rise in near future.

The Knight Frank report states, “We expect this low interest rate environment will continue to put a floor under prices. This means that, rather than another sudden large price shock, homeowners face a slow erosion of real prices until the price-to-earnings ratio reaches more manageable levels.”

However, in the long-run the interest rates would rise. When this happens, it could lead to two scenarios. If the interest rate rises slowly, helped by a growing economy where job creation happens, and average earnings rise faster than inflation, then the housing market scene can change.

But a sudden increase in interest rate could have an immediate repercussion which might also force banks to take action, spurring a sharp rise in repossessions and intensify house price declines.

The analysts say in the report, “We do not see average prices reaching their 2007 peak again until 2019 which would mark the longest period between price peaks in more than 60 years. Once inflation is stripped out, average UK house prices are unlikely to hit 2007 levels again in real terms until 2031.”

The analysts opine that the housing market will take years to reach the transaction levels that were seen at the peak levels in 2007. The report forecasts only a 2% rise in transactions next year.

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