EY: H2B will fuel housing market

Sam Cordon

October 14, 2013

Over a million people are expected to move home this year alone, while investment in new housing projects is set to increase by 7.5% next year and an additional 10% in 2015, predicts the report.

The EY (formerly Earnst & Young) ITEM Club’s autumn forecast says the boost to housing demand will have a knock on effect on house prices, rising by 3.5% this year and 6.6% in 2014.

However, it says that fears of a housing bubble are unfounded and premature at best.

Peter Spencer, chief economic advisor to the EY ITEM Club, said: “The government’s efforts to revive the mortgage market have been well-timed and targeted, and will benefit most regions in England.

“Despite the recent criticism of these initiatives, the chances of seeing another housing market bubble are extremely slim.

“House prices and transactions are only just recovering from the credit crunch and will be paltry in comparison to those of a decade ago.

“Household finances are also in much better shape, with debt to income ratios now at sustainable levels.

“Lenders will still check that the borrower’s income is sufficient to support the loan and this check is the main protection against rising interest rates and other problems in the future.”

This improving outlook for the housing market and consumer confidence has contributed to upward revisions to the EY ITEM Club’s latest growth forecasts for the UK economy.

GDP is expected to reach 1.4% this year and 2.4% in 2014 – up from the 1.1% and 2.2% respectively that were predicted last quarter.

According to the report, the UK’s short term growth will continue to be fuelled by the consumer. The recovery of the housing market, combined with falling unemployment, rising real incomes and improving confidence levels, will help to keep the tills ringing on the high street.

Despite only modest increases in disposable incomes of 0.2% this year, consumer spending is forecast to grow by 1.6% before rising to 1.9% in 2014.

Although the report warns that this latest spending splurge means we will be saving less than before, with saving ratios easing back to 5.7%, down from last year’s 6.8%.

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