It's been a year of economic uncertainty but seven interest rate cuts and low inflation have helped keep the housing market buoyant. Price rises were slower than in 1999 and 2000 but they still managed to beat the predictions of many industry experts.
House prices are up by an average of 12 per cent this year, beating forecasts for growth of between 5 and 7 per cent.
"The housing market has strengthened in 2001," says Barry Nesbit, chief economist at Abbey National. "Affordability has been boosted by the sharp cuts in interest rates and [the fact] mortgage rates [are] at a 40-year low. And the UK economy has remained resilient in the face of the global downturn."
The Bank of England decided against a further cut in interest rates last week, though many industry experts expect another cut early in the new year. Mortgage broker Charcol predicts that rates will fall another 0.25 per cent, bringing the base rate down to 3.75 per cent, before rising to 4.75 per cent by the end of 2002. The effect of this on mortgages is that standard variable rates are likely to rise to between 5.75 and 6.75 per cent. Even so, mortgages will still be affordable and house prices look set to continue rising, albeit at a slower rate.
"There'll be a steady easing in house price growth in 2002," says Martin Ellis, group economist at Halifax. "Sluggish economic growth and rising unemployment will mean that consumer confidence and demand won't be as buoyant as we've seen this year."
Charcol and Bradford & Bingley think prices will rise by about 3 or 4 per cent. Abbey National and Halifax expect a rise of about 5 per cent, while Nationwide predicts growth of about 6 per cent.
However, Alex Bannister, group economist at Nationwide, says: "The key for prices in 2002 will be regionality."
"Southern England will bear the brunt of the slowdown," says Mr Ellis. "We think prices will rise by only about 2 per cent in Greater London, reflecting the fact that prices there have risen so sharply over the past few years that affordability is becoming a real issue. Outside southern England, though, growth is likely to be at least 5 per cent."
In some areas of London, house prices have actually fallen slightly over the past few months. Ray Boulger, senior technical manager at Charcol, believes this trend could continue until the spring and may be seen in other small pockets around the country. Overall, however, we will not see a repeat of the slump of the early 1990s, and house prices will hold up against the economic pressures.Reuse content