It's not just the leaves which are falling this Autumn. House prices are dropping, too. The decline follows a run of three interest rate rises in just four months over the spring and summer. Previously bullish, prospective buyers have taken heed of rising borrowing costs and warnings from the Bank of England and are drawing in their horns.
An overall decline in house prices has been recorded for the first time in over a year, the RICS (Royal Institution of Chartered Surveyors) housing market survey reports. The organisation says there are few signs that a significant market downturn is around the corner but there is no doubt that the property market, like the weather, is cooling. Lack of new buyers has contributed to this large fall-off in activity, with the number of sales down 25% over the past year; their lowest level in nine years.
‘Buyers are still nervous which is not surprising given the quick fire interest rate rises over the summer,' says Jeremy Leaf of RICs. 'Sellers are accepting valuers' estimates more readily, and negotiations before a sale is agreed are harder. Despite the gloom, the professionals on the ground believe that confidence will not deteriorate further over the coming months as the underlying factors, jobs and the wider economy, remain stable.'
Buyers' market
Latest figures from Hometrack reflect this steady fall. The survey is based on information supplied by a network of estate agents around the country and sees every UK county except Cheshire reported a drop in house prices in November, with the largest falls occurred in Central London & City, West Sussex, Surrey, London - South West and Cambridgeshire. The data shows five consecutive months of price decline with the average property price now standing at £164,800, down from a peak of £167,700 in June this year.
It may be a buyers' market but their caution is also revealed in an increase in average property viewing figures per sale, now at all-time high of 12.5 and the time taken to sell exceeded 7 weeks for the first time ever. Average sales price as a percentage of asking price is now at an all time low of 93.1%, confirming that buyers are in their best ever position for negotiating reductions on the initial asking price. Sellers have to lower their prices in order to achieve a sale.
'With house prices now over 100% higher than five years ago, values have reached their peak given current levels of household income and interest rates,' comments Hometrack's Housing Economist John Wrigglesworth. 'With the excess supply of unsold properties increasing, further house price falls are inevitable over the coming months,' he adds.
Peak not reached
Andy Gray, head of mortgages at Barclays and The Woolwich, says we have not seen the last of the interest rate rises: 'With confidence levels at the lowest for four years, the decision to hold rates came as no surprise following the slowdown in the housing market and lower growth in borrowing. We expect confidence to soften further as interest rates are set to peak at 5% in early 2005.'
The Woolwich consumer confidence index shows that just 45% of homeowners now believe their property will continue to increase in value compared to 56% in August.
The right rate
If you are planning a move, avoid making snap decisions about your mortgage. 'We expect the slowdown to continue through the winter months,' says Michael Coogan of the Council of Mortgage Lenders. It's figures show that although the number of home loans being issued has decreased, many of the rates being offered are rising. The average fixed rate increased from 5.68% to 5.69% and capped rates rose from 5.32% to 5.63% in October. Many buyers or existing homeowners considering a mortgage switch are waiting for these rates to drop or opting for trackers, which have become flavour of the year.
“Notwithstanding the current weakness in the market, we expect house prices to stabilise next year and recover in the second half,' explains Wrigglesworth. 'Household incomes are rising 5% per annum, unemployment is falling and is now at a 20 year low, interest rates are now likely to remain stable rather than increase, and lenders are continuing to extend the multiple of income on which they will lend. All this points to a recovery of buyer confidence next year. Buyers can afford to purchase homes, but at present their inclination to do so is low.”
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