Economists predict 10% house price inflation for next two years

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House prices are expected to rise by 10% this year and in 2015 due to a loosening of credit conditions, rising wages and a structural shortage of housing.

Berenberg, the German private bank, said there had been an improvement in the availability of riskier household credit but banks' were expected to tighten underwriting when the Mortgage Market review came into force.

Rob Wood, chief UK economist at Berenberg, said tighter lending conditions were a good thing given the dangers that could result from house price inflation accelerating even further.

He said: "The readings from the latest [Bank of England] Credit Conditions Survey could reduce the upside risks to our forecast."

Banks' intentions to cut back on mortgage approvals, highlighted in last week's Credit Conditions survey, would mean there was less need for the Bank to step in and tighten lending standards to calm the housing market.

But Wood said that banks needed to retain some perspective when curtailing the number of mortgages they approve.

He said: "Demand for mortgage credit is rising sharply whereas it wasn't in 2012 when banks last tightened credit.

"So banks will approve a lower proportion of a rising demand."

In the wider economy Berenberg has predicted growth of 3% in 2014 and 3.3% next year.

It said its "above consensus" forecasts were due to a "snowballing" UK recovery which began with an intial burst of consumer spending followed by more sustainable business investment.

 

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