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Last Updated: Wednesday, 20 December 2006, 12:06 GMT
House prices 'to be 15% higher'
House keys
Buying a house may become much more expensive in 2007
UK house prices could be 15% higher by the end of 2007, Lombard Street Research has said.

The group, which correctly forecasted 10% house price growth in 2006, insisted recent UK interest rate rises would not quell the housing market.

It added that record mortgage lending, low stock of housing and interest rates pointed to a continuing boom.

Longer-term, it warned that a property price bubble may develop, but not until 2008 at the earliest.

"House prices are not overvalued if you look at affordability with interest rates at just 5%," Diana Choyleva, Lombard Street forecaster, said.

"Market momentum will be sustained in the near term and a weaker global economy should stop the Bank of England (BoE) raising rates more than a quarter of a percentage point in the spring.

"We are, therefore, forecasting house price rises of between 10% and 15% in 2007," she added.

If double-digit growth is achieved, Ms Choyleva warned that 2008 could see a bubble developing in the housing market.

On Wednesday, figures from the Council of Mortgage Lenders (CML) showed mortgage lending in November at an all-time high.

London buoyant

Many economic groups and mortgage providers have issued their housing market forecasts for the year ahead.

Most have predicted house price growth at just above the rate of inflation.

Lombard Street's prediction of double-digit growth is the highest to date.

London, buoyed by large City bonuses, is widely predicted to lead the upward drive in prices in 2007.

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