British house prices are ’31pc too high’ – OECD.
The UK’s property market is the eighth most over-valued, according to the Organisation for Economic Cooperation and Development.
A study by the OECD, which compared prices with local wages and rents, suggests Belgium, Norway and Canada are the most expensive markets compared with their own long-term averages, followed by New Zealand, France and Australia.
British house prices are 31pc too high compared to rents and 21pc over-priced against incomes.
For cheap property, the research points to Portugal, Ireland, Germany and Japan.
The former two saw huge price falls during the financial crisis. The excesses of the property bubble that burst in late 2007 largely passed over Germany, and Japan’s market has been in an on-off slide since a banking crisis in Tokyo in 1990.
The OECD study echoes research published two weeks ago by The Economist. The news magazine produces its own study twice a year with the latest suggesting the most over-valued markets were Hong Kong – 81pc too high against rents – Canada and Singapore.
It estimated that against rents, prices in Britain were 19pc too high, which was less than France (39pc) and Spain (15pc). Measuring house prices against rents offers a measure similar to the price-to-earnings measure, or p/e ratio, used to value shares and stock markets.
Prices in the UK fell 20pc in the initial phase of the crisis but mounted a recovery in 2010 which means values are now only 11pc below their 2007 peak.
In Ireland. prices have fallen more than 50pc. In Spain, the figure is estimated at 26pc.
The figures were released as part of the OECD’s latest global economic forecast.
It said: “Prices are high and in some cases continue to rise, in Norway, Sweden, Canada and New Zealand, pointing to a risk of correction – especially if borrowing costs were to rise or income growth were to fall.”
The UK market has been supported by an influx of foreign buyers into London, keen to find a perceived safe asset in the turmoil of recent years.
But the market has also been propped up by state intervention. The Bank of England’s stimulus policy – keeping the Bank Rate low and electronically printing money through a programme of quantitative easing – has extended a steady flow of artificially cheap credit to homeowners and buyers with large deposits.
The Government has stepped up this intervention since last summer with the introduction of the Funding for Lending Scheme. Ultra-low rate loans, worth up to £80bn, have been offered to lenders to pass on, which has pushed down mortgage rates.