The spur to prices would come from the huge numbers of home-owners who cannot move because they are caught in the negative equity trap, with mortgage debts of more than the value of their property. That will restrict the supply of property for sale, forcing prices higher, according to John Wriglesworth, of the stockbrokers UBS.
'Most of the pain is over. It's still not quite ready for take-off but we are over the worst. It's probably a good time to buy,' said Mr Wriglesworth, one of the most respected analysts of the housing market, in a review of the market. He said the surge would be strongest in the South, where almost 80 per cent of the country's 1.9 million home-owners with negative equity are concentrated.
Prices in Greater London and East Anglia should rise by 10 per cent while other areas foreseen beating next year's predicted 4 per cent inflation rate include the South-east (8 per cent) and the South-west (7 per cent). The national average would be 7 per cent, although some areas, including Northern Ireland, Scotland and Yorkshire and Humberside will still lag behind inflation with rises of 2-3 per cent, the report said.
But next year's boom would be short-lived and would peter out by the end of 1995 as demand from first-time buyers fell off because of the lower birthrate in the 1970s, it added.
Other analysts backed Mr Wriglesworth's forecast of slow recovery. Steve Bell, housing specialist with the stockbrokers Morgan Grenfell, said he believed that the market in London and the South had reached the bottom. 'On a month-on-month basis house prices will be going up everywhere this time next year. A gentle recovery is taking place. There is pent-up demand, but there are so many brakes on recovery that it's nonsense to talk about a boom scenario,' he said.
Jeremy Withers Green, the housing analyst at Credit Lyonnais Securities, says that house building firms are already showing signs of recovery. 'We could be back to a normal market within two years.'
House prices fell by 8 per cent last year and have dropped by up to 30 per cent since the peak in late 1988. Mr Wriglesworth predicted that there would be no change this year, with rises at the end of the year cancelling out falls in the early months.
Mr Wriglesworth also expected the volume of house sales to rise - by 20 per cent this year and a further 18 per cent in 1994. First-time buyers would begin to lose their fear of falling prices and the negative equity trap, and would be encouraged by smaller rises in unemployment and continued low interest rates.
Lenders would continue to repossess the homes of people who have already got into difficulties with their mortgages, according to Mr Wriglesworth.
He expected repossessions to remain at about 75,000 a year. However the stock of empty properties was being whittled down by transferring them to the rental market through the Business Expansion Schemes and housing associations.
Norman Lamont, the Chancellor, suggested yesterday that the next move in interest rates would be upwards if the economic upturn began to threaten a rise in inflationary pressures. Speaking in Washington, he said: 'Containment of inflation is the keystone of our policy; whatever is necessary to keep inflation down, we will make the policy adjustments to get it.'
Lamont's Budget hint, page 17
Buyers beware, page 23
Property, page 38Reuse content