Economists predict 10% house price inflation for next two years

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.

The 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.

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.

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

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