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Global real estate research firm Knight Frank has looked into the future and divined that the United Kingdom’s (UK) housing market won’t return to peak levels until 2019. The report shows that the UK’s transaction levels are about 50% of their level prior to 2007 and the low interest rates being sustained to reenergize the market will in turn undermine the market’s ability to recover more rapidly. Even worse, the wider Eurozone economy is not improving as more austerity is proposed in adjacent nations, which means there will be less for foreigners to invest in the UK. For more on this continue reading the following article from Property Wire.

The UK property market is experiencing its longest recovery on record and prices are unlikely to reach levels last seen during the peak of 2007 until 2019, according to analysts.

Property prices in prime central London have gone from strength to strength this year, but the general trend within the UK market has been for prices to fall, says the latest analysis from Knight Frank.

Transaction levels in the UK housing market stand at roughly 50% less than during the last market peak in 2007, and are 35% below the 20 to 30 year average.

It means that the sector is currently experiencing its longest recovery on record, with prices not expected to reach their 2007 peak until 2019, according to Knight Frank's new forecast.

Prices have so far been supported by record low interest rates and as the UK economy struggles to deliver consistent and convincing growth, there seems little chance of interest rates rising any time soon.

'We expect this low interest rate environment will continue to put a floor under prices. This means that, rather than another sudden large price shock, homeowners face a slow erosion of real prices until the price-to-earnings ratio reaches more manageable levels,' says the report.

However, at some point, interest rates will rise. This is likely to lead to one of two scenarios. If they rise slowly, in tandem with a growing economy where new jobs are being created and average earnings are rising faster than inflation the housing market can weather the change.

'A sudden and unexpected rise in interest rates, however, could have an immediate effect. Such a move might also force banks to take action, which could in turn spur a sharp rise in repossessions and intensify house price declines,' it explains.

In the wider economy, there is more austerity to come and the report points out that Chancellor George Osborne has shown little sign of deviating from the schedule of public sector cuts which will continue well into next year and 2014.

'We do not see average prices reaching their 2007 peak again until 2019 which would mark the longest period between price peaks in more than 60 years. Once inflation is stripped out, average UK house prices are unlikely to hit 2007 levels again in real terms until 2031,' the report adds.

It also points out that the recent Mortgage Market Review highlights that the current conditions in the mortgage market are not a post crisis blip. Instead, the current environment should be viewed as the new normal.

'As a result, we expect the housing market will take years to reach the transaction levels seen at the peak of the market. We forecast only a 2% rise in transactions next year,' the report concludes.

This article was republished with permission from Property Wire.