This is in stark contrast to the generally weak price rises experienced 12 to 18 months ago everywhere outside of London, says the UK Economic Outlook report from PwC.
It projects that the average UK house prices could rise by around 8% this year, with prices increasing by around 13% in London. However, the pace of growth is set to moderate over the next two to three years.
This means that by the end of 2015, the average property in the UK could be worth around £276,000, up from £242,000 at the end of 2013. By 2020, the average UK house could be worth close to £330,000 in cash terms.
It also says that the housing market is not yet overheating at national level, but evidence of a bubble is stronger in London, where borrowers are more stretched on average.
PwC described the recent recommendations from the Financial Policy Committee (FPC) focused on restricting the proportion of new mortgages at high loan to income ratios as ‘sensible’.
It also says that concerns about a possible house price bubble could also be one factor causing interest rates to rise sooner rather than later. In the longer term, however, measures to boost housing supply more directly should be the priority.
‘House prices across the UK are accelerating. We do, however, expect the pace to moderate, slowing to around 3.5 per cent between 2016 and 202o,’ said William Zimmern, a PwC senior economist.
‘We don't believe the housing market is overheating at a national level yet, although evidence of a bubble in London is stronger,’ he added.
Zimmern raised the prospect of the Bank of England increasing interest rates eightfold when the shift does eventually come, to put a dampener on the housing market.
‘They could rise to around 4% but in the longer term, measures to boost housing supply more directly should be the priority,’ he concluded.
