Why house price increases are nothing to write home about
Housing market indexes show that property values are still rising. But you should not bank on them continuing to do so, says Laura Howard
Sunday 13 June 2010
You may have missed it, but property prices are once again nearing their pre-credit crunch highs, confounding many experts.
Homeowners looking to their property as their pension, or keen to escape negative equity, will have been bouyed by the recent round of property price surveys. Nationwide reported property price hikes of 0.5 per cent during May, pulling up average values by a healthy 12.2 per cent from their lowest recorded point in February 2009. According to the building society, the average UK house price now stands at £169,162.
The latest Land Registry figures also revealed an upward movement in prices of 0.2 per cent during April, the sixth consecutive month of house-price rises, taking the average property value to £165,596. Property advertised on the website Rightmove was consistent with this, with average asking prices up by 0.7 per cent (or £1,622) in May on the previous month.
Only Halifax reported a fall during May of 0.4 per cent, edging the average value of a home down to £167,570. This follows a drop in the previous month too, of 0.1 per cent but a rise the month prior to that.
But, the question of whether a general climb in the value of property spells recovery is more controversial than ever. Jonathan Davis, chartered financial planner and spokesperson for Housepricecrash.co.uk, describes the upturn this spring as "the peak of the biggest suckers' rally in history" and forecasts that house prices will plummet by up to another 10 per cent by the end of this year.
He attributes this to a rising supply of property against a flat demand, which has become gradually evident since the start of last year, according to data from the Royal Institution of Chartered Surveyors (Rics).
The Government's recent decision to scrap Home Information Packs (HIPs), for example, has resulted in a flood of homes coming on to the market. According to Rightmove, new property listings soared by 35 per cent in the week following the announcement about HIPs on 20 May, as people were able to put up For Sale signs speculatively and not pay for a pack.
On the demand side, inclination to buy property has waned. Recent figures from the Council of Mortgage Lenders show that the post-credit crunch mortgage drought is still in full swing. An estimated £10.2bn was lent in April – down 12 per cent on the previous month and marking the lowest level in any April for 10 years.
Public spending cuts and taxes rises – most notably to capital gains tax – due to be announced in the Government's emergency Budget on 22 June is also expected to see consumer confidence plummet and translate directly into the housing market.
However, arguments to support the ongoing health of the housing market are equally valid – and they begin with the most affordable interest rates in history at 0.5 per cent. "My view is that base rate will stay this low until well into 2011, which should dispel any fears of price falls," says Ray Boulger, senior technical director at John Charcol. "So long as rates stay low, I forecast house price rises of around 7 per cent between now and the end of the year."
Although the mortgage market is still a far cry from pre-credit crunch days, it is also starting to show signs of improvement. Stuart Law, chief executive of Assetz House Price Watch, says: "As lenders continue to increase the number of mortgage products available and improve rates and loan to values, the market will continue to creep forwards and I would still expect to see a modest growth of 5 per cent by the end of the year."
The views of Halifax and Nationwide are broadly similar, though Nationwide is more optimistic. The chief economist at Nationwide, Martin Gahbauer, says: "For the remainder of the year we expect house prices to remain close to their current level, ending 2010 around 2 per cent to 3 per cent higher than a year earlier."
The chief economist at Halifax, Martin Ellis, says the mixed pattern of monthly price rises and falls so far this year is "consistent with a slowing market – and in line with our view that house prices will remain flat during 2010 as a whole".
But, working on averages, all house price indices should be taken with a pinch of salt. First, they base their figures on different criteria; Nationwide and Halifax on UK mortgage offer values, the Land Registry on sale completions – but only in England and Wales – and Rightmove on asking prices. In May, however, asking prices stood at an average £237,134, a far cry from Land Registry figures of completed sales at £165,596.
"As well as the overall trend of house price indices, homeowners will need to consider supply and demand from Rics' data and mortgage approvals from the Bank of England to get a picture of where the market is heading in the next few months," says Mr Davis. "Other more macro-issues, such as unemployment, interest rates and GDP will tell us what will happen in the next few years."
And, on the other end of this broader brush, there are also regional, local and even situational price variations for property to consider. Websites such as Zoopla.co.uk provide a value for your home when you input your address by using public records of its last sold price combined with various house price data from that area.
But even these are only a starting point, says its chief executive, Alex Chesterman: "Our estimates are not formal valuations and can't be used as such, but they do provide a good basis for researching the likely value of a home, which should then be supplemented with professional advice."
And, of course, this will boil down to a traditional estate agent. "Values vary considerably within small areas and even the same street which only local agents will understand," says a past president of the National Association of Estate Agents, Melfyn Williams. "They will also know what's happening in real time – like how many buyers are waiting and for what kind of property. Both of these factors will also affect the value of your home."
Yet homeowners are still at risk of using the upward trend of house prices as the key to feeling "wealthy". "This will be a problem if it encourages people to spend on the plastic," says Melanie Bien, director of the mortgage broker Private Finance. "Homeowners may assume they can remortgage their homes to clear such debts, but with lenders far more cautious than three years ago, this will be much more difficult."
Martin Ellis, the chief economist at Halifax:
"We have a slowing market and our view is that house prices will remain flat during 2010."
Martin Gahbauer, the chief economist at Nationwide:
"We expect house prices to remain close to their current level, ending 2010 around 2 to 3 per cent higher than a year earlier."
Stuart Law, the chief executive of Assetz House Price Watch:
"The market will continue to creep forwards and I expect to see growth of 5 per cent by the end of the year."
Jonathan Davis, a chartered financial planner:
"The market does not move in line with a calendar; it moves in economic cycles. That said, I predict falls of between 5 to 10 per cent by the end of the year."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Under new state pension rules we will all be much worse off
Interest-only mortgages return to give more flexibility to borrowers
Five Questions On: GB Energy's new tariff
Bargain Hunter: Take your children on Eurostar on a £1 ticket
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
- 1 Kim Jong-un shows off airport designed by architect he likely had executed
- 2 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 3 German ethics council calls for incest between siblings to be legalised by Government
- 4 Fifty Shades of Grey author E.L James's Twitter Q&A didn't go exactly as planned
- 5 Facebook rainbow profile pictures likely being tracked by social network
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Pentagon accuses Russia of 'playing with fire' over nuclear threats towards Nato
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
Tunisia beach attack: How can British Muslims respond to the latest outrages?
iJobs Money & Business
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...
Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...
Day In a Page
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.