Photographer: Matthew Lloyd/Bloomberg

Cheap Money to Boost U.K. House Prices 6% in 2016, RICS Predicts

  • Supply shortage will continue to propel values next year
  • Property-price increases forecast to outstrip income gains

Low borrowing costs and a shortage of supply will drive U.K. house prices up 6 percent next year, according to the Royal Institution of Chartered Surveyors.

Demand for housing remains strong, driven by record-low interest rates and a resilient economy, and values grew an annual 7 percent in October, according to the most recent data from the statistics office. Chancellor of the Exchequer George Osborne is attempting to boost supply and announced additional spending on housing last month.

“Despite the raft of initiatives announced over the past year, the lags involved in development mean that prices, and for that matter rents, are likely to rise further,’ said Simon Rubinsohn, chief economist at RICS. “Lack of stock will continue to be the principal driver of this trend but the likely persistence of cheap money will compound it for the time being.”

East Anglia will be the fastest growing region in 2016, RICS predicted, with prices set to climb 8 percent, while the South East and West Midlands will probably see values rise 7 percent. The slowest gain will be 3 percent in the North East, it said, while London is forecast to grow 5 percent.

The Bank of England’s benchmark rate, the basis for most mortgage lending, has been at 0.5 percent since 2009 and has helped house-prices outpace inflation. The central bank has said it’s waiting for a sustained pickup in consumer-price growth before hiking rates and has signaled a preference to use macroprudential measures, such as curbs on lending, to counter stability risks stemming from property.

RICS said it was “likely” that the central bank will use such measures next year to “complement the stance of monetary policy.”