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House prices 'to rise 5.3% in 2010'


Tuesday May 4th 2010

The twin factors of a shortage of new homes and low mortgage rates are likely to push up house prices by 5% throughout the rest of the year, a business group has said.

Despite their sluggish start to the year the average house price will rise 5.3% to £172,500, according to the centre for economics and business research (cebr).

Lower price growth of 3.4% is expected in 2011, but in 2012 a strong rise of 9% is expected.

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The cebr warned that cuts in public sector jobs and very low wage inflation could limit the scope for house price inflation.

Its forecast is also slightly lower than its previous one for the year, of house price growth of 6%.

The group is also predicting that average mortgage rates will fall 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.

At the moment the economic consensus is for the base rate to rise to 2.25% by the end of 2011, but cebr thinks it will then still be at 0.5%.

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