LONDON British house prices are set to rise much faster than almost non-existent consumer inflation and outstrip modest pay gains, making home the ownership dream even harder for the average first-time buyer, a Reuters poll found.
They will rise 5.0 percent this year, 4.0 percent next and 3.8 percent in 2018, according to medians in a poll of 20 property specialists taken in the past week, steeper this year than in forecasts published in December.
However, wages are only expected to rise 2.8 percent this year and 3.6 percent in 2017.
"The house price to earnings ratio is nudging six times and is less than 1.0 times off its all-time peak from 2007. Many younger people have no choice but to rent," Tony Williams at Building Value said.
With interest rates at a record low of 0.5 percent, borrowing is relatively cheap but buyers are usually required to have a 10 percent deposit, making getting on the housing ladder difficult.
The average asking price for a home was a record high of 299,287 pounds this month, according to property website Rightmove, around 11 times the annual British salary. In greater London the average asking price was 643,843 pounds.
London homes were overwhelmingly rated as expensive, with a median of 9.0 on a scale of one to 10, ranging from very cheap to very expensive. Nationally, house prices were rated 7.0, above the 6.5 given in a December poll.
"UK house prices remain extremely over-valued. For now, they are supported by record low interest rates," said Oliver Jones at Fathom.
Economists do not expect Bank Rate to go up until October at the earliest - and financial markets are not pricing in an interest rate rise for about two years - but both agree any increases would be gradual.
Rates would have to reach 2.0 percent before seriously restraining the housing market, the poll found, a level only two of 33 economists surveyed by Reuters earlier this month had in their forecasts before the end of next year.
Respondents said one of the biggest risks to the housing market was instead further evidence of a global economic slowdown.
A large proportion of foreign buyers have come from China and Russia but growth in the world's second biggest economy has continued to slow while Moscow has struggled to escape recession in face of a slump in oil prices - the country's main export.
Those wealthy foreigners had been buying up huge swathes of property in the capital and that, coupled with market speculators buying homes and demand far outstripping supply, sent London prices skyrocketing.
Britain has a huge buy-to-let market, where investors buy multiple properties and rent them out. But finance minister George Osborne announced in November they would have to pay a 3 percentage-point higher rate of stamp duty than residential buyers from April.
"The biggest single risk is changes to the market once the buy-to-let changes come into force. We have seen in the past what can happen when legislative changes alter buyers' behaviour," said Peter Dixon at Commerzbank.
Despite the global jitters and the upcoming extra tax burden, London prices will still rise 5.0 percent this year and next before a more modest rise of 4.4 percent in 2018, the poll found.
(Polling by Shrutee Sarkar and Kailash Bathija; Editing by Andrew Heavens)