Knight Frank 2014: Large Near-Term Price Rises, Beware Longer-Term Risks

Knight Frank says mainstream UK average house prices will rise seven per cent in 2014 with cumulative growth of 24 per cent by late 2018.

Although Greater London will rise 8.4 per cent next year, the firm’s percentage rate rise predicted for the whole of the UK exceeds that forecast for prime central London prices, which KF says will rise four per cent next year and a cumulative 20 per cent by late 2018.

In line with almost all agents’ predictions so far, KF addresses the “are we in a bubble?” question head-on. “Price growth has only started to outpace inflation very recently. In addition, average monthly transaction levels are still more than a third below the long-term average in England and Wales, according to the Land Registry” says Grainne Gilmore, Knight Frank’s head of UK residential research.

She says that the heady 24 per cent UK five-year increase comes out at a more sustainable 14 per cent once inflation is stripped out.

Liam Bailey, KF’s high profile global head of residential research, says long-term prospects suggest a continuing strong market - but no bubble is in sight in future years, either.

“We have been persuaded that growth in 2014 and 2015 will be substantially higher than inflation. However we’ve maintained our view that over the long term, while nominal and real price growth may remain positive, house prices are likely to rise more slowly than earnings for at least a few years after 2016” he says.

But interestingly - and perhaps more obviously than any of his peers in other agencies - Bailey gives a warning against complacency.

“The fact remains that [residential] pricing in the UK is high in historic terms. While the government can encourage activity over the next two to three years, it cannot change the fundamentals surrounding market affordability, especially as the ‘special factors’ of low interest rates and government interventions start to unwind” says Bailey.

That is about as close as an estate agency selling homes gets to saying ‘don’t get carried away with short term prices are still too expensive for many’.

In a ‘key risks’ section to its forecast, Knight Frank identifies increasing interest rates and the possibility of wider economic recovery stalling as the primary risks to the health of the mainstream UK market, followed by restrictions on bank lending and international factors such as another Eurozone trauma and Sterling strengthening (so making UK property look less good value to overseas buyers).

Knight Frank has in recent years been strong on regional forecasts and for 2014 it says:

Scotland up 6.3%
North East up 6.7%
Yorkshire and Humberside up 6.6%
North West up 7.0%
East Midlands up 7.3%
West Midlands up 7.0%
East Anglia up 7.3%
Wales up 6.8%
Greater London up 8.4%
South East up 7.6%
South West up 7.6%

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