House prices in the South West are expected to shoot up to a new record high over the next five years.
According to the latest regional land report from leading property advisers CBRE, the region’s economy is well on the road to recovery after house prices started rising steadily.
Guy Mansfield, head of national land and development at CBRE Bristol, said the price of homes in the Westcountry could rise 10% year on year to reach their highest regional increase from 2015 to 2019.
The CBRE said the property market rise could put the average house price at £207,420 by 2019, an increase of more than £20,000 from today’s prices.
Jennet Siebrits, head of residential research at CBRE, said: “The sharp house price growth we have witnessed over the last year is typical at the start of a recovery, due to the release of pent-up demand.
“London has dominated the housing market in recent years and recorded particularly strong house price growth, but there is now an evident ripple-out effect with increases recorded across all UK regions. While growth has generally been lower outside of London and South East, we expect some element of catch-up from other UK regions to occur over the medium to long term.”
Mr Mansfield added: “Improved sentiment has resulted in an upswing in activity across the region, although limited land availability has clearly had an inflationary effect on values.
“Housebuilders continue to focus on opportunities that deliver traditional housing, with limited appetite for higher density apartment schemes.”
The CBRE’s report also highlighted that funding for development continues to be challenging as banks remain risk averse, often requiring substantial equity and personal guarantees to consider lending on speculative residential schemes.
Mr Mansfield added: “Help to Buy has improved sales rates across the region but this is not the only scheme delivering increased demand. Infrastructure funding from the Homes and Communities Agency has unlocked sites that would have otherwise remained beyond the reach of well funded housebuilders.
“Recent changes to planning policy will also undoubtedly release a number of brownfield or edge of settlement sites that have been in commercial use.
“However, these sites usually require redeployment of commercial uses, which can marginalise viability.”
The report also showed that house prices would start to level off in few years.
Mr Mansfield said a small increase in interest rate, which economists believes could be announced by the Bank of England in the autumn will not have too much of an impact on mortgages.
He said: “When interest rates start to rise, we expect it to be at slow and considered increments so impact on mortgage affordability may be quite minor and contained.”
Tim Jones, chairman of the Devon and Cornwall Business Council, said there was a risk of seeing the housing bubble return especially as the effects of the London housing market start being felt in the South West.
He added: “We are fearful of the house price bubble returning to the South West.
“It is healthy to have a thriving housing construction activity but we need to have an affordable housing stock and a market where there are opportunities for young people to access the market and progress.”
Mr Jones added: “Any price bubble which reflects the London market would be making these issues more difficult to achieve.
“We need to build more homes to redress the demand and offer balance but we need to be more efficient with our planning system so the down side of the housing bubble and the impact on the environment are minimised.”