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LONDON-Residential values are forecast to rise by 10% over the next three years as the boom market finally runs out of steam. In the past three years they have grown by 53%.

New research from FPDSavills has found that affordability pressures are biting across the whole market. The agent says the best prospects are at the very top end of the market where supply is most constrained and buyers not mortgage reliant.

Richard Donnell, head of FPDSavills Residential Research said: “Rising interest rates, slower growth in household incomes and limited demand from first time buyers are the key factors behind the limited growth in values we are anticipating over the next three years.”

The research cites rising interest rates and a continued absence of first time buyers as the two biggest threats to the housing market going forward. The strong take-up of fixed rate and discounted mortgages means that the impact of higher interest rates on house prices will be diluted. Furthermore, so long as unemployment does not rise, then Donnell believes that a 0.5% to 1% increase in interest rates can be absorbed into the market. Such a rise would lead to a major slowdown in growth rather than major price falls.

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