Real Estate

UK house prices to rise annual 6% for five years

UK housing: Low supply squeezing prices

U.K. house sales hit a six-year high in March, a survey revealed on Thursday, but a supply shortage continues to send prices soaring.

The Royal Institution of Chartered Surveyors (RICS) study forecast property prices in Britain would rise 6 percent yearly over the next five years, fueling fears the market is in bubble territory.

RICS' survey showed that the average number of houses sold per surveyor in March rose to 22.7, the highest since February 2008.

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Simon Rubinsohn, chief economist at RICS, was confident the property bull run had further to go.

"I think we are still a third down on the high watermark in terms of activity, and in fact, in many parts of the country, we're really only just beginning to see a real emergence from what was quite a stagnant property market for quite some time," he told CNBC in a phone interview.

"So I think…in terms of activity levels, (we have) quite a way to run."

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U.K. house prices have been rapidly rising, particularly in London and the south east, buoyed by historically low interest rates, an acute shortage of supply and a government mortgage scheme called Help to Buy.

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RICS' house price balance - calculated by subtracting the number of surveyors reporting a rise in prices from the number reporting a fall - rose to 57 last month, from 47 in February. This meant an increasing number of respondents saw prices rise.

Supply shortage

New sale instructions dropped for the third time in a row in March, highlighting concerns about supply shortage.

"The real problem actually is the lack of supply, there is just not enough stock out there. And in some markets…you're seeing prices squeezed up," Rubinsohn said. "I don't think anybody can feel very comfortable with where the level of house prices are now."

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The Bank of England waded into the house price debate last month, saying it would remain "vigilant to emerging vulnerabilities" in the real estate sector, in a statement published on March 27. U.K. Chancellor of the Exchequer George Osborne echoed the sentiment, and told a parliamentary committee last week that a "close eye" should be kept on the market.

Analysts are split on when the U.K. could see an interest rate hike, with many banking on a rise in 2015. This will have implications for mortgages and could help cool down the property sector, Rubinsohn said.

"I think obviously at some point the cost of money is going to go up one way, or another and that's going to slow the market," he said.