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Will house prices rise in 2007? By Rob Griffin
Despite widespread concern about the lack of first-time buyers in the market and the prospect of further interest rate hikes, house prices are still expected to rise by 7% this year. This upbeat assessment comes from propertyforecasts.co.uk, "People have been saying it's going to crash for the last five years, but this hasn't happened," she says. "There was a period in late 2004 when everything went flat, but prices have generally been increasing since the middle of 2005." Bradley believes that most homeowners should expect to see their homes increase in value over the next 12 months. "We are still forecasting average house price growth of between 6% and 7% for the coming year," she adds. "There will obviously be some places where prices won't rise but, on average, the trend is definitely upwards.' Boom times Bradley's bullish stance is supported by a clutch of recent surveys. Property consultant Hometrack, for example, said that house prices rose in November last year at their fastest annual rate for over two years, while the Nationwide Building Society has put the price of the average home at almost £170,000-£12,500 higher than a year ago. The boom times have had knock-on benefits for the economy, says Darius McDermott, managing director of Chelsea Financial Services. As he points out, people always feel more upbeat - and willing to spend money - when their properties are going up in value. Rising prices have enabled thousands of people to remortgage and release the equity built up in their homes. But it's not all good news. The rapid house price growth over the past five years has made it very difficult for first-time buyers to take their first steps in the property market and condemned thousands of them to a lifetime in rented accommodation. According to a report by the Alliance Trust Research Centre, the last 36 years have seen house prices rise from 2.5 times income to 3.9 times income. This ratio is greater than four times in London, the South East, the South West and East Anglia. As a result, the average deposit required by a first-time buyer in the UK is now £30,661, while in London this figure has risen to a staggering £51,800. Little wonder, therefore, that so many people are having problems affording their own home. Scotland has now taken over from Yorkshire as the most affordable region and London has replaced the South East as the least affordable. First-time buyers So why have values remained so resilient at a time when first-time buyers, who have traditionally been the lifeblood of the property world, been in such short supply? Halifax chief economist Martin Ellis says: "We've continued to see an ever-increasing number of people in jobs and interest rates at relatively low levels. At the same time, we've had a lack of supply, due to levels of house building not keeping up with demand, and an increase in the number of households being formed." There have also been plenty of investors snapping up buildings - particularly those in need of updating - over the past decade and this demand has helped sustain prices at these levels. As well as capital appreciation, these developers are attracted by the prospect of a regular income from renting out these properties. Most agents are also relatively optimistic about the outlook for 2007 - even though some admit that the strength of the market has taken them by surprise. Adrian Tod, director of Hayward Tod Associates in Cumbria, says that although the number of completions recorded in 2006 is up on the previous year, it's still a pretty unpredictable marketplace at present. Pace unsustainable According to figures published by the Council of Mortgage Lenders (CML), there's little sign of our enthusiasm for buying property abating any time soon. Gross lending during October 2006 hit a whopping £30.3 billion - 12% up on the same period in 2005 and 4% higher than September's figure of £29.2 billion. However, the CML's director general, Michael Coogan, warns that it's unlikely that this pace will be sustainable, even though the housing market appears to be in "robust shape", with a high demand for properties. "House price growth is also strong, so we expect to see lending remain at high levels through the New Year," he says. "However, with interest rates rising for the second time in three months, we anticipate a modest slow down in house sales and mortgage approvals as 2007 progresses." Not everyone is quite so upbeat though. An increasing number of observers are citing the decision to increase interest rates to 5% at the end of last year as a reason why house-price inflation will moderate over the coming months. David Miles, chief UK economist at Morgan Stanley, expects house prices to fall, but admits that it's very difficult to be accurate on the timing. "A substantial fall in real house prices is likely at some point in the relatively near future, though it could yet be one to two years away," he says. Others go further. One website that has nailed its colours firmly to the mast is housepricecrash.co.uk, which was set up three years ago to act as a counterbalance to the huge amounts of positive spin that the housing market receives in the media. Reinhard Schu, its spokesman, says that numerous indicators, such as house-price to income ratios, point to the fact that property is now overvalued in the UK even though lenders have devised a raft of products to attract new customers. Bigger crash to come "We believe that the ever-increasing willingness of mortgage lenders to lend more has kept the market going," adds Schu. "If that hadn't happened, the market would have corrected itself a long time ago in a relatively orderly fashion. Lenders increasing credit will just cause a bigger crash later." David Hollingworth, spokesman for mortgage broker London & Country, agrees that lenders have become more flexible, but rejects claims they are doing so to artificially inflate house prices. "Lenders are increasingly adopting affordability models which take into account a person's other debts, rather than going on a salary multiple," he says. "If they've got a lot of existing credit commitments then they'll only be able to borrow a fairly modest amount." So, are property prices going up or heading for a fall? Well, the wide variety of opinions being expressed in the marketplace makes it very difficult to draw any meaningful conclusions.
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