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Your Money > Mortgages Articles > Housing prospects for...
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By Alice Lilley
House prices fell 1% in December, despite rising 9.9% over the course of 2006, according to the most recent figures from mortgage lender Halifax. But do such statistics mark the start of a housing market crash? Not according to most commentators. Estate agent Savills, for example, is forecasting 7% growth in 2007, while mortgage lender Nationwide expects prices to rise by between 5% and 8%. This fits with the latest predictions from the Council of Mortgage Lenders (CML), which reveal that it expects prices to rise by 7% in 2007 and 5% in 2008. Howard Archer, chief economist at Global Insight is also predicting a 6% increase in 2007. He said: "Ongoing strong mortgage activity and a shortage of supply suggests that house prices could well see further buoyancy in the near term." However, the Royal Institution of Chartered Surveyors believes prices will climb by just 3% this year, while Halifax is forecasting a 4% rise. Martin Ellis, chief economist at Halifax, said: "House prices fell by 1% in December, but it remains too early to conclude that this indicates a genuine slowdown in the housing market. Overall, prices in the final quarter of 2006 were 4.2% higher than in the previous quarter, marking the strongest quarterly rise since the second quarter of 2004." The overall increase recorded by Halifax in 2006 was driven by strong growth in areas such as London, where the average price paid for a property hit £287,176 at the end of the year, and the South West, where the average home now costs £200,931. See how much your house is worth Most of the areas that performed particularly well were playing catch up after a lacklustre few years, though. The 10.5% increase in prices in the South West, for example, represented a recovery following a 1.9% fall in 2005, while prices in East Anglia also achieved double digit growth (13%) after falling 1% the previous year. And all regions, except London where demand is underpinned by a buoyant regional economy and some areas are also expected to benefit from the Olympic effect, are expected to record lower house price growth in 2007. Ellis said: "Continued economic growth, rising employment and an ongoing lack of supply will continue to drive up house prices over the coming months. Higher interest rates, greater pressure on household finances and subdued real earnings growth will, however, constrain demand." One thing that the bullish CML believes will support house prices in 2007 is continued buy-to-let borrowing by investors. It thinks that borrowing of this kind will account for 13% of gross lending in 2007 and 14% in 2008, up from 11% last year. Lee Grandin, managing director of buy-to-let specialist Landlord Mortgages, said: "Over the last ten years, the buy-to-let market has grown and matured as increasing numbers of ordinary consumers choose to invest in residential property. In 2007, we will see this trend continue, supported by the increasing number of good value fixed rate mortgage deals available. Make sure that you're on the best mortgage deal "The overall health of the property market continues to hinge on the Bank of England's stance on interest rates. If we see another interest rate hike in early 2007, this will dampen the market due to the increased cost of borrowing and may even cause house prices to fall slightly. However, our research shows that almost 25% of landlords have prepared for this eventuality by remortgaging existing properties to create 'war chests'. If the housing market does enter a rocky period in 2007, these investors will therefore be ideally placed to snap up bargains and keep the market ticking over. The bad news for homeowners with variable-rate mortgages, as well as investors and first-time buyers hoping to get a foot on the property ladder in the coming months, is that Halifax expects the Bank of England to raise the base rate by a further 0.25% early this year. Rates are not predicted to remain at this level for long as continuing subdued earnings growth and slowing domestic and overseas economic activity are expected to bring the base rate back to its current level of 5% by the end of the year. Ellis said: "The UK economy is expected to continue its record-breaking run of continuous expansion, delivering its 60th successive quarter of growth during 2007. This strong economic background will underpin another healthy year for the housing market. Higher interest rates, greater pressure on household finances and subdued real earnings growth, however, will constrain demand." A further rate rise will make the outlook for households facing mortgage repayment difficulties more challenging than in the recent past, however, while also prompting a greater degree of caution amongst homebuyers. CML economists Jim Cunningham and Paul Samter said: "The strength of demand relative to supply will remain a structural feature of the housing market for the foreseeable future. This means that, in the absence of major shocks, house prices are likely to rise above current levels in relation to income. "That said, affordability, measured by the size of deposit required and the percentage of income needed to service the mortgage of a new borrower, is stretched. "Although changes to lenders' policies, product innovations and support from relatives will continue to help some people into home-ownership, there is a limit to how far these measures can go. Movers, too, are likely to find it increasingly difficult to trade up as price differences between properties widen. This suggests it will become progressively more difficult to put chains together and that this will constrain the total number of sales." Useful link:
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