Predictions are never easy or for that matter consistent. Economist pour over data, interpret what they see, draw conclusions and make assumptions.
So while I put as much faith in economist as I do in astrologist - it is always good to see positive thoughts on house prices from independent groups with nothing to gain.

The Centre for Economics and Business Research (CEBR) has issued a statement suggesting that the average property price will increase by around by 5.3% (about £9000) during the year to an average of £172,500. It then expects lower price growth of 3.4% during 2011, followed by a strong rise of 9% in 2012. This is without doubt a very positive and somewhat bold statement on the UK property sector but if you look at the detail behind their reasoning it’s not hard to see why.

“The factors driving up house prices are low mortgage rates, keeping housing affordability in as favourable a position as at any time since 2004, and a very low rate of house building,” the CEBR said in the statement. They expect average mortgage interest rates to drop by about 1 percentage point from around 4% now to 3% by the beginning of 2011. It said the drop would be driven by the money markets pricing in the impact of cuts to the Government's budget deficit. The research also expects the Bank of England base rate to remain at 0.5% for longer than is currently predicted.

Douglas McWilliams, chief executive of the CEBR, said in the statement that he Bank of England’s first increase in its interest rate “could be as much as two years away and possibly more so,” adding that "When the market realizes, the spreads on new mortgage rates will fall.”
But it added that the impact of this was likely to be temporary and within 18 months rates would be back where they would have been if a single party had won the election. So good news for those investors on tracker mortgages!

Personally I agree with the CEBR's sentiment and those of you who have looked at our investment spreadsheets recently will see that we priced in a 4-5% capital growth over the next two years. Aren’t we smart! ;)

That’s said I always maintain that first and foremost you should look to invest for good rental income and look at capital growth as the cherry on top. Predictions, even by highly educated people with lots of letters before and after their name, are still just that. Given the choice I will take the certainty of rental payments in my account every month above potential growth over a few years every time. But it’s nice to know that some very smart people agree with my long term pension plan. 

If you have questions or want to talk through how Smuts & Taylor can help you invest in London with confidence, feel free to call the office on +2711 083 6366 or contact me directly on +44797 1000 667.Wishing you health, wealth and happiness,

Mike Smuts
Property investor and MD of Smuts & Taylor.