House prices hit the ceiling

As sanity returns to the market, what is the outlook for sellers and buyers?

First-time buyers can celebrate at last. After months of rocketing house prices, particularly in London and the South-east, there are signs that the market is slowing down.

First-time buyers can celebrate at last. After months of rocketing house prices, particularly in London and the South-east, there are signs that the market is slowing down.

Even though house prices have gone up by 15.1 per cent over the past year, according to Nationwide, they are now believed to have reached a plateau. This is welcome news given that a one-bedroom flat in central London is likely to set you back around £150,000.

"Sanity has finally returned," says Donna Bradshaw, director at independent financial adviser Fiona Price and Partners. "Maybe we'll see a bit more balance in the market. It has got to the stage where it has to even out because so many people can't afford to buy properties in the big cities."

However, house prices are still rising in some regions. According to the Royal Institution of Chartered Surveyors, rises are reported in Yorkshire, Humberside and the West Midlands, as the gap closes a little on property prices in the South.

Surveyors in the South-east, meanwhile, reveal that property prices are actually falling for the first time in two years. The south-west of England and East Anglia - regions which enjoyed the boom - have reported a downturn along with London. The East Midlands and North-west are also seeing lower prices.

However, before you get too excited at the prospect of plummeting prices, Ray Boulger, at independent mortgage broker John Charcol, warns that widespread falls are unlikely. "Prices have come off the top in some places where they were well above average anyway," he says. "A more realistic picture than one of falling prices is that the market has stabilised. I would be surprised if we saw further falls."

A property crash is unlikely. Prices are unlikely to fall very far as economic conditions are good, unemployment is low and interest rates have peaked or are close to peaking. The competitive mortgages around at the moment are also likely to continue to attract buyers. Even though the base rate set by the Bank of England is 1 per cent higher than this time last year, mortgage rates are just 0.25 per cent higher, on average, over the same period.

"Two-year fixed or discounted rates are available at 5.5 per cent," says Mr Boulger. "Existing customers with a standard variable rate [7.75 per cent on average] have been harder hit by rate rises but people are moving on to fixed or discount deals."

Despite this, slower demand will still be felt. The drop in the number of transactions and enquiries received by estate agents in recent weeks is set to continue.

According to Portman Building Society, supply is now overtaking demand in many areas. Estate agents are holding houses on their books for longer, while sellers in some areas, particularly the Midlands, are having to accept offers below the asking price.

There is also evidence that home owners are staying put. Rather than moving to bigger houses, they are taking out loans or remortgaging their homes to pay for extensions and other home improvements.

Although first-time buyers have been put off buying in recent months, with prices calming down, now is a good time to get a foot on the property ladder. "One of the key benefits of the change in market sentiment from the buyer's perspective is that a few months ago you would have felt pressured into buying - perhaps paying more than you thought a property was worth. Or you may have bought a property you didn't really like because you were scared you hadn't got your foot on the ladder," says Mr Boulger. "Now the market has slowed down, it has made it easier for buyers not to feel so pressured."

However, it could be argued that buying a home has nothing to do with timing. "A house is where you are going to stay for a while so it is not something you should be speculating about," says Ms Bradshaw. "Over time you are saving yourself rent. So even if house prices never move, when you've finished paying the mortgage you will still be sitting in a house you own, so you have a tangible asset."

She advises that the only time when it isn't good to buy is when you are planning to be in an area for the short term. "You should think of your first property as your home first and foremost. If you are only going to be there a couple of years then maybe it is not a good time to buy," she says.

If you are worried about the re-sale value of any house you buy, it is worth ensuring that you pick a property you are happy to live in. As long as it's in good condition, you should have no problem selling it on if you decide to move.

After all, if you considered it to be a desirable property, it is highly likely that someone else will too.