Forecasters Item Club say chancellor’s Help to Buy scheme will get people moving but broader economic outlook still gloomy
The housing market will finally return to life this year with more than a million people expected to move home – the highest number since the financial crisis struck.
The Ernst & Young Item Club, which uses the Treasury’s economic models, predicted that housing transactions this year will rise by 7.5% to 1m. In its spring forecast the respected economic forecaster said the chancellor’s plan to use £12bn of taxpayer funds to underwrite up to £130bn of mortgages will push home moves up a further 7.8% next year to 1.08m.
House moves are also expected to be encouraged by falling mortgage costs due to the Bank of England’s Funding for Lending scheme.
Property prices are not expected to rise this year, but are predicted to increase 2.1% in 2014 and 5% in 2015.
Peter Spencer, chief economic adviser to the Item Club, said: “With export markets continuing to disappoint, the chancellor has focused his firepower on the home front. And the timing couldn’t have been better. Real incomes are already starting to recover, mortgages are becoming more readily available, and homes are more affordable as the house price to earnings ratio continues to fall.
“Although it’s not a long-term strategy, stimulating the housing market and the high street will keep GDP growth positive. Unbalanced growth is better than no growth.”
Spencer said the chancellor’s Help to Buy scheme had the potential to get people moving again, and dismissed claims that it would just put up prices rather than increase supply and make it even more difficult for first-time buyers to get on the ladder.
“We expect [the scheme] to boost the number of housing transactions, particularly at the lower end of the market where the deposit and low equity have been a major constraint,” he said.
However, the Item Club had a gloomier view of the prospects for the economy as a whole, predicting that the UK will have to wait until 2015 before exports start contributing to growth.
It expects GDP to expand by just 0.6% this year and said that with the rebalancing of the economy on hold, the UK will again have to rely on the consumer.
“We should start to feel slightly better off this year, which will help to loosen the purse strings. Consumer spending added 0.7 percentage points to GDP in 2012 and the chancellor’s budget will help ensure the tills continue to ring for some time yet,” Spencer said.
Consumer spending is set to increase by 1.2% this year and 1.9% in 2014, but the 2.2% growth predicted in the following two years is still well down on the 3.7% a year it averaged in the decade prior to the financial crisis.
Spencer added: “Consumers have been burnt by the experience of the recession and are much more cautious with their finances. Households are likely to continue paying down debt rather than racking up huge credit card bills.”
The bitter March weather dragged high-street footfall down 5.2% last month, according to the British Retail Consortium. It was the weakest month since April 2012.
Helen Dickinson, the consortium’s director general, said: “The prolonged cold was the main culprit for deterring shoppers, especially compared against the far milder March of 2012. Although footfall did pick up around the Easter weekend, it couldn’t fully compensate for a weak showing across the month as a whole.”