Prices of houses in Britain will rise by 4% in both 2006 and 2007, says the Royal Institution of Chartered Surveyors, who point out they accurately predicted an expected upturn of 3% for 2005.

The modest pick-up in house price rises forecast for next year reflects the impact of the August interest rate cut, as well as a lift from a further expected 0.25% interest rate cut in the first half of 2006.

Prices of houses in Britain will rise by 4% in both 2006 and 2007, says the Royal Institution of Chartered Surveyors, who point out they accurately predicted an expected upturn of 3% for 2005.

The modest pick-up in house price rises forecast for next year reflects the impact of the August interest rate cut, as well as a lift from a further expected 0.25% interest rate cut in the first half of 2006.

This year the August interest rate cut helped to shore-up confidence in the market during the autumn and released some pent-up demand which had been held back due to concerns that interest rates may rise further, and that house prices may drop significantly.

A key indicator that the housing market is now past its low point is that mortgage approvals have rebounded strongly hitting 113,000 in October, against an average of 100,000 over the past decade

The bad news for first-time buyers is that although house prices are high in relation to earnings and will constrain price gains, actual price falls are not on the cards. RICS estimates that in Q3 house prices were 7.8 times earnings compared with an average of 4.9 since 1969.

However, House prices are sustainable at present levels as mortgage interest payments still account for just 8.9% of households’ disposable income, compared with the long run average of 9.2%.

With the housing market showing signs of a recovery from a marked drop in activity in the latter half of 2004, purchases are also expected to rise firmly in 2006, having fallen for two successive years. RICS expects mortgage approvals to rise from a five-year low of 1.127 million in 2005 to reach 1.336 million in 2006.

This year the August interest rate cut helped to shore-up confidence in the market during the autumn and released some pent-up demand which had been held back due to concerns that interest rates may rise further, and that house prices may drop significantly.

A key indicator that the housing market is now past its low point is that mortgage approvals have rebounded strongly hitting 113,000 in October, against an average of 100,000 over the past decade

The bad news for first-time buyers is that although house prices are high in relation to earnings and will constrain price gains, actual price falls are not on the cards. RICS estimates that in Q3 house prices were 7.8 times earnings compared with an average of 4.9 since 1969.

However, House prices are sustainable at present levels as mortgage interest payments still account for just 8.9% of households’ disposable income, compared with the long run average of 9.2%.

With the housing market showing signs of a recovery from a marked drop in activity in the latter half of 2004, purchases are also expected to rise firmly in 2006, having fallen for two successive years. RICS expects mortgage approvals to rise from a five-year low of 1.127 million in 2005 to reach 1.336 million in 2006.