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.
How couples can protect their financial interests when cohabiting
Money alert: Overdrafts at HSBC and First Direct
'Dismal' eurozone data sparks concerns
How to protect your assets if the stock markets begin to head south again
Child Maintenance Service to replace Child Support Agency - but is it better?
- 1 Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
- 3 Kajieme Powell: Missouri police release video footage of second man killed by officers
- 4 Paul Scholes: Manchester United need five experienced players who can turn round a desperate situation
- 5 James Foley 'beheading': Met police warn public watching murder video could be criminal offence
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Scottish Independence Referendum: Salmond described as 'arrogant, ambitious and dishonest' by Scottish women
iJobs Money & Business
Highly Competitive Salary: Austen Lloyd: CITY - HIGHEST QUALITY INTERNATIONAL ...
£500 - £600 per day: Orgtel: Relationship Manager, London, Banking, Accountant...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
£40000 - £55000 per annum: Harrington Starr: A Global Financial Service Organi...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony