U.K. property prices are set to cool as borrowers will face tighter lending restrictions and an increase in housing supply will ease the price surge in the country, according to a new report.
The EY ITEM Club expects price growth in the “simmering” housing market to ease next year and to fall significantly by 2016, preventing an “unsustainable boom.”
The forecast predicts prices will rise by 7.4 percent this year and 7.2 percent next year, easing back to 4.2 percent in 2016 as the mortgage guarantee scheme ends.
EY said the financial services watchdog, the Financial Conduct Authority (FCA) will play a crucial role in keeping a lid on prices and newly gained abilities to rein in lenders must be used.
“The FCA will assume crucial importance to ensure multiples do not become too stretched and that affordability is scrupulously checked. If these controls are rigorously applied this will eventually constrain London prices,” said Peter Spencer, chief economic advisor to EY ITEM Club.
However, this forecast is at odds with other surveys, which suggest there will be consistent price rises in the next five years, fueling fears the market is in serious bubble territory.
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