Reports of house prices bubble may be premature - warning

The Royal Institution of Chartered Surveyors (RICS) has added fuel to the fire by suggesting limiting house price inflation to five per cent a year.

However, data analysed by London Central Portfolio (LCP) has revealed that fears of a house price bubble are premature. It said that in a fragile economic recovery, it would seem ill judged to dampen the small sparks of hope for many UK home owners.

According to the government’s Office of National Statistics, average annual price growth in the UK has been 9.4 per cent since 1969, the date from which the data is published. This represents a doubling of values approximately every seven years.

Current price growth is under long term average. According to the government’s other house price data set, the Land Registry House Price Index, growth has been just 0.67 per cent per year over the last seven years, equating to a fall in real prices of around three per cent a year.

LCP, which tracks price data from Land Registry, reported a long-term cycle of doubling prices on average every seven years. Its head of investment Hugh Best said: “Knee-jerk reactions to short-term movements are not helpful and should be tempered by a proper understanding of market dynamics.

“Residential property prices in the UK move in cycles. Periods of growth are generally followed by periods of consolidation. A rise one year may be offset by a fall in the next. Capping growth at five per cent a year, as RICS suggests, completely ignores this dynamic.”