Culture Lab U.K. (Culture-Lab)



House prices in the U.K.


 

Houses in Britain are not just a little overpriced they’re up to 65% overpriced...


The Organisation for Economic Co-operation and Development revealed that UK property prices are amongst the most elevated of any major world economy and noted that the housing market in Britain is up to 65% overvalued and needs further interest rate rises to cool it.


On top of this, finance experts also warned that the Bank of England would increase interest rates to 6% before the end of the year.


This prospect will alarm homebuyers who are already struggling to meet their monthly mortgage payments after four interest hikes since last August.


Annual payments on an average £150,000 mortgage are already an astounding £1,200 higher than this time last year.


The Paris-based OECD said that it was worried about the valuations of homes in a wide range of countries following a world-wide boom and said that a slowdown is long overdue and that a property crash cannot be ruled out.


Among the G7 club of rich nations only Canadian properties are more over-inflated than the UK's levels.


If interest rates are not raised soon as a way of slowing down the economy then a major slump might do the same job but with far more serious consequences.


The OECD's report said, 'Some slackening in the pace of housing investment is likely in many OECD countries and that may play a part in cooling down of some faster growing economies. There is always a risk however that it will take the form of a pronounced slump with subsequent substantial knock-on effects on other parts of the economy’.


The research in the OECD's biannual Economic Outlook compared the price of the average house with those of annual rental incomes.


This measure is extensively used by experts because if houses do not generate enough rent then landlords will be want to pay less for property thus driving down prices and this indicator in Britain is now 65% above its historic average since 1970.


An alternative method is to compares house prices with average annual incomes and this showed that UK prices are 45% higher than their long term average.

Ed Stansfield of the research organisation ‘Capital Economics’ said there are good explanations for Britain's decade long house price surge including lower borrowing costs and a shortage of new properties on the market.


His calculations suggest that the market is at least 15 to 20% overvalued and he said, 'We are in for a very, very subdued picture in terms of house price inflation and housing market activity’.


Despite fears for the housing market, the outlook for the UK economy remains upbeat according to the OECD and it predicted that gross domestic product will increase by 2.7% this year which would mean similar to last year's healthy 2.8%. Nevertheless it urged the Bank of England to be `watchful` following a recent surge in inflation.


The OECD also criticised Chancellor Gordon Brown for failing to do enough to rein in public spending and called for greater restraint.


Estimates show that the UK's deficit will be higher than any other western European country this year as NHS budgets climb and Mr Brown struggles to control public sector pay.


Its figures also compare public deficits with the size of overall economies across the 30-nation OECD and in Europe only Hungary and the Czech Republic are experiencing a more dramatic deterioration in their public finances.


A Treasury spokesman said, `As this report shows, the UK has one of the fastest growing economies in the G7 this year and is forecast to grow faster next year than any other major European economy thus building on a record 58 consecutive quarters of economic growth’.