Only buyers can see the sunny side

Autumn Property Survey: Have house prices reached the bottom? Here and on pages 16 to 20 we provide a guide to the market

STANDING at the pavilion bar at Lord's last month, I could not help overhearing one member enthusiastically regaling two friends with a story about some riverside apartments in London which had been drastically reduced to pounds 89,950 each, according to a woman in his office, who with her partner had picked one up as a snip. Scenting an investment bargain, he had promptly rung the show office to be told there were none left. A Japanese gentleman had bought the last six as an investment.

For those with long memories in the property market, it is faintly reminiscent of the mid-1970s, when the bottom had fallen out of the first property boom. Then it was wealthy Arab oil tycoons fleeing their holiday homes in Beirut who bought themselves London homes, sparked the recovery in the London market, and created a knock-on effect that spread from London through the South-east to the extremities of the kingdom.

But - at best - it is a straw to clutch at. There is a housing boom in Northern Ireland, where prices have risen more than 10 per cent since the ceasefires. Prices of prime property have also recovered in certain parts of London, especially in the area running from Kensington and Chelsea out towards Kingston. But in London and south-east England as a whole, prices have risen barely 1 per cent in the past year and are 15 per cent below the peak. Scotland has just shaded higher; everywhere else prices have continued to drift and are still well down from 1990 levels, according to data collected by the Halifax, the Nationwide and the Council of Mortgage Lenders.

The property market has remained depressed by rising interest rates and unemployment, and the reduction of tax relief in the last two Budgets. It is not all bad news: Kenneth Clarke, the Chancellor, won the fight with Eddie George, the Bank of England Governor, to stop a further rise in base rates during the summer. Last month, mortgage rates were unilaterally reduced across the board, helped by changed perception of base rates, the pressure of competition from remortgage lenders, and the growing power of such telephone-based lenders as First Mortgage Securities,which can undercut conventional branch-based lenders by at least 0.5 per cent.

The Bank of England, in its latest Quarterly Bulletin, argues that relative to personal disposable income (after tax) house prices are as cheap now as at any time in the last 30 years. As a result, many pundits are now calling the bottom of the market, but no less an observer than Mr George, a committed enemy of the housing market, says the property sector as a whole has further to fall.

For the time being then, the future remains unclear, but the past has certainly been grim. In real terms the setback since 1991 has been no worse than in 1972-74 or 1978-80. But it has lasted twice as long, and this time the underlying level of inflation has been low so actual property prices have fallen significantly, probably for the first time since the Second World War. This has created the phenomenon of negative equity, where a million borrowers are in effect unable to move.

Negative equity did not create the parallel problem of repossessions, but it has certainly made the problem worse than it might otherwise have been, because in a falling market, lenders felt obliged to repossess properties and evict the owners in order to limit the risk of further losses, rather than wait for debtors to sell and trade down. And negative equity is certainly responsible for the "feel-bad" factor, hardly noticeable in earlier property downturns.

Negative equity has also led to an unparalleled drop in the numbers of people able and willing to move home, which in turn has adversely affected housebuilders, estate agents and the DIY trade. The number of sales fell from a peak of 2,150,000 in 1988 to a low of 1,138,000 in 1992, and although it edged up to 1,275,000 last year, it is expected to drop below 1,200,000 again this year. The toll on estate agency profits and the number of agencies operating has been terrible and shows no sign of stopping.

Until recently, there was apparently little or nothing estate agents could do except implore sellers to be realistic and recognise that the market is depressed. In the past month, Royal Estate Agencies across mainland UK have jollied their clients to cut asking prices by 10 per cent in an attempt to drum up business, and this past week Barnard Marcus has teamed up with Trading Places, a specialised conveyancing company, to offer a no-sale no-fee service, plus free legal services, for vendors. And Halifax Property Services introduced its short-lived and universally condemned reverse bonus scheme to try to get property owners to drop their prices to levels where sales could be achieved.

House-builders have had an equally thin time. Housing completions fell from a peak of 232,000 in 1988 to a low of 171,000 in 1992 and, after they crept up to 179,000 last year, anecdotal evidence suggests a fall this year. Housing costs have risen 15 per cent since 1990, although new house prices has risen by less than 4 per cent. While this is partly a reflection of a trend to smaller, cheaper properties, the squeeze on housebuilders' profits has been severe. Barrett stands almost alone in resisting the pressure, thanks to niche products and strong marketing. Housing associations now account for 20 per cent of new property completions; without them the market would be even more depressed.

The only active area of the market continues to be in competition between lenders to steal business from each other by dangling tempting offers of fixed- rate mortgages, discounted interest rates in the early years of a mortgage, and actual cash-backs, all available to customers who change lenders as well as to genuine buyers.