House prices expected to rise amid shortage of properties

Thirty per cent of Rics members expect a bump in house sales by October

Hopes for a recovery in Britain’s housing market are rising again, according to a leading survey that predicts that property prices will rise over the next three months.

The Royal Institution of Chartered Surveyors (Rics) will today say the balance of its members who expect prices to rise rather than fall in the next three months has climbed to 8 per cent, the highest reading since April last year.

Almost 30 per cent expect a bump in sales by the end of October. Rics believes part of the improved optimism comes as a result of demand from new buyers outstripping supply. There were still fewer surveyors reporting rising rather than falling prices in July, but the gap narrowed from a balance of minus 18 per cent to minus 8 per cent.

However, experts warned there could be a relapse next year. Jeremy Leaf, a spokesman for Rics, warned: “Although demand for property is continuing to rebound, it still remains low from a historical perspective. Crucially it is the lack of supply that is helping to underpin prices at the present time.”

The group performed a dramatic U-turn last week, saying house prices would be higher at the end of the year thanthe start. InDecember, it had predicted a drop of up to 15 per cent. It said that lower interest rates and falling prices had caused it to change its mind.

Yesterday’s survey found that almost two-thirds of surveyors reported a rise in newbuyer enquiries in July. Transactions were also up during the month, pushing the “agreed sales net balance”

to its best level in a decade. Surveyors sold an average of 15 properties each against 13 in June. The stock of houses on estate agents books remains low, Rics said, as vendors remain reluctant to put properties on the market.

“Significantly, the more positive news on prices – at least in some parts of the country – may prompt more properties to come on to the market,” Mr Leaf said. “If mortgage availability remains insufficient to meet the increase in buyer demand, then it is possible that prices may slip back again especially if unemployment continues to rise and mortgage rates increase.”

Thesurvey showed a marked difference around the country. London had the highest sales to the amount of houses available, with prices also rising 31 per cent. The sales-to-stock ratio was lowest in the North of England, where 23 per cent of surveyors say prices are still falling rather than rising.

Mr Leaf said: “The pattern emerging in the regions is very interesting, with more chartered surveyors in London, the South-east and the South-west reporting rising prices, while those in the North are clearly experiencing a very different marketplace.”

Rics’s decision to reverse its position last week came on the same day that the Halifax house price index posted a 1.1 per cent rise in July. Recent data from the Nationwide and the department of Communities and Local Government also showed the market was on the rise. Howard Archer, the chief European and UK economist at the Halifax, said there was a steady stream of evidence showing that house prices had“at least temporarily bottomed out and are firming”. “However, given tight credit conditions, still relatively poor economic fundamentals and the fact that affordability ratios are starting to move back up, we suspect that house prices are highly likely to suffer relapses over the coming months,” he said.

Much will depend on whether the economy can sustain a likely return to growth in the third quarter, unemployment, credit conditions and the amount of properties coming on to the market.

“Today’s report is good and supports recent data, but there could be worse to come,” Mr Archer added.