IT’S the perennial dinner party question: what will happen to house prices in the coming year? With a hung parliament on the cards come May and economists divided over when the Bank of England will decide to raise interest rates, those who are looking to move property remain understandably nervous.
Mortgages are still hard to come by, and the spectre of negative equity looming, adding more pressure to those who have been unable to move over the past couple of years.
In recent months we have seen price-rises, but are they sustainable? Should up-sizers sit tight, or take the plunge now? And what is the picture for first-time buyers?
Below we have asked five prominent figures – who have experience in different sectors in the property business – for their predictions about what is in store for the market.
Ed Mead, director of Douglas & Gordon
Supply is at an all time low. Sellers think prices are rising – so they'll wait – and they’re concerned they won't be able to “port” their mortgages. Lack of stock becomes self-fulfilling as no one can find anywhere to buy.
A total of 80 per cent of central London buyers are foreigners, principally Euro-based ones. Weakness in the pound seems to be matching any perceived weakness in the euro, and it is unlikely that this avalanche of interest will stop anytime soon.
Overall, there is little to suggest a fall in values, but sadly little to imply more supply either, which is what any market needs to power forward. Given the continuing reluctance of banks to supply mortgages, the lack of supply is really all that is keeping values from falling, but at least the mortgage market is loosening up a little giving a small glimmer of light at the end of the tunnel for buyers.
Andrew Montlake, director, independent mortgage broker, Coreco
In the past two months, we have seen a massive rise in mortgage enquiry levels, from purchasers wanting to take advantage of low rates and still competitive house prices, to remortgage customers seeking to fix before variable rates inevitably rise.
As soon as there is any decisive action on interest rates, or the mere sniff of it, expect demand for fixed rate products — and their rates — to soar.
Looking forward, I think the mortgage market this year will be front-end loaded, in other words there will be better products, lower rates and greater mortgage availability in the first half of the year than the second.
So, while it feels like things are improving now, with property prices recovering from extreme lows and higher loan-to-value products, do not be surprised if it all goes into reverse again after the General Election.
But what won’t change is that people with sizeable equity will continue to get the best products and rates.
For first time buyers, while product availability is improving, a decent deposit, good credit history and sensible level of borrowing relative to income will be essential. So anyone without the Bank of Mum & Dad there to write them a cheque will need to carry on saving like crazy.
Tim Hammond, founder, Buyers Edge
With the economy as weak as it is, who knows what could happen??That said, I think it’s safe to say that house prices are unlikely to rise a great deal more in the months ahead, despite the fact that we have technically exited the recession.
In fact, if anything, house prices are likely to fall as more properties come onto the market, either because people feel more confident about selling or because they are forced to sell, which will be a real possibility if the Bank of England raises interest rates.
I would therefore recommend that prospective homebuyers, whether first time buyers or up-sizers, don't rush into buying right now. Instead, they should sit on their hands for a bit longer, as there is every chance the price rises of the past nine months will fall back in 2010. The key is not to panic, worry that prices will keep rising and impulse buy, but to keep your powder dry and wait for stock levels — and therefore choice — to improve and prices to fall.
Catherine Penman, head of research, Carter Jonas agency
There is very little clarity around pricing at the national level. The house price landscape varies from isolated hotspots of activity where sale prices are exceeding levels achieved in 2007 to areas where they are still in decline. The price of a property is currently defined by its location and quality, not what is happening in the broader market.
The monthly house price rises during the second half of 2009 and early 2010 are unsustainable, especially given the still-delicate state of the economy. The Nationwide February house price index, which saw prices fall by 1 per cent, reinforced this fact. Nationally, we expect house prices to grow by between 0 per cent and 1 per cent in 2010, with increased supply keeping a lid on prices.
However, any number of factors could erode recent price gains – a sudden rise in interest rates to combat inflation, for example, increased corporate and individual insolvencies, a rise in unemployment or higher taxes post-General Election.
We expect prime London properties to outperform the rest of the UK, showing price rises of 2-3 per cent during 2010. Demand remains strong for properties at the top end while supply, although rising slightly, is still low. Foreign investors continue to buy up prime London properties given the ongoing weakness of sterling.