Dismal Outlook on British House Prices Only Adds to Gloomy Economy

A poll released on Monday by Reuters concludes dismal predictions for British house prices. The prices are expected to stagnate by the end of this year.

Reuters cast 25 market watchers in the poll last week, and they calculated the prices would range from a 3.0 percent rise to a 7.0 percent fall. They expected to see a 0.6 rise back in December.

The poll, measured on a one to 10-point scale, also asked property owners to score "1" as undervalued" and "10" as extremely overvalued," when asked if British homes were expensive.

They scored an average of 6 this year, and that stayed relatively high compared to last December 2011, when owners gave it a score of 7.

For 2014, the poll predicted a 2.0 percent rise, which is below the current 2.7 percent consumer price inflation rate. The gloomy housing climate comes at a time where both economy and pay rises are also flat-lining.

In addition to low pay rises as a factor for families, Michael Saunders at Citi told Reuters "low loan-to-value ratios and poor affordability," will also stagnate the British housing market.

Within one year, British families have seen the price of homes increase by six-fold from last year's national average of 26,500 pounds to 162, 245 pounds or approximately $247,700.

Mortgage approvals, however, did improve.  It rose to 55,785 in December and the poll predicts there will be an increase of 63,000 by next year.   

"But central London will continue to do well," Saunders said.

London was where a wealth of  overseas investors such as Middle Eastern oil magnates and United States bankers had arrived.  London will see a 2.5 rise by the end of this year and a 4.0 percent rise next year.   

"The long-term outlook for house prices is likely to be one of modest growth at best. Even by 2018 - the last year of our forecast horizon - prices are still projected to be slightly below their 2007 peaks," said Peter Dixon, a strategist at Commerzbank, in an interview with Reuters.