The bulls of the British housing market have run their course. According to the HBOS house price index, almost a decade of house price rises have seen the average home add a staggering £100,000 to its value. But this was the year when the pessimists finally outnumbered the optimists.
While many analysts predict that prices will fall by two per cent next year, especially in the South, no one can seem to agree on the extent of the fall. Among the most bearish projections was from research group Capital Economics, which predicts a drop of up to 20 per cent.
But it's not all doom and gloom for those wishing to sell in the New Year. The Bank of England's decision this month to hold interest rates level for the fourth month in a row, at 4.75 per cent, may help soften the blow.
The estate agents FPDSavills estimate that house prices will grow modestly, at two per cent, next year. Charcol, the mortgage broker, estimates that prices will rise by four per cent. The Council of Mortgage Lenders predicts the same figure. Nonetheless, the Royal Institution of Chartered Surveyors reports that more of its members are seeing house price falls than price rises.
The truth is, as ever, more complex than the raw predictions can show. There is no such thing as a single UK property market. Instead, there are thousands of smaller markets, and prices can vary not only from borough to borough but from street to street.
This year, prices rose fastest in the English regions and in Wales - albeit from a low starting-point. Richard Donnell, head of residential research at FPDSavills, says that while prices in London have grown by 150 per cent in the last six to seven years, in parts of the North that has been compressed into just three years. "We are actually most optimistic on the outlook for London and the South-east, and the least optimistic for the North."
Much of this comes down to affordability - the percentage of income home buyers have to pay for their mortgages. Stories of key workers and first-time buyers being priced out of the market tend to focus on London and surrounding areas, but affordability is actually worse in some of the regions, because salaries are generally lower.
All property market watchers are now talking about a return to "fundamental values". In London and the South-east, there has been enough negative press already to bring prices closer to these levels. In the regions, some of the more overpriced homes could well see sharp falls next year.
These messages of a downturn appear not to have reached certain sellers, however. This month, Yorkshire Bank found that more than 53 per cent of sellers in the North and 60 per cent in the Midlands expect house prices to rise. They are also the least likely to accept an offer under the asking price to secure a quick sale, whereas southerners are happier - or more realistic - to settle for a lower offer.
So when will the market bounce back? Ray Boulger, of the mortgage broker Charcol, suggests that property values could fall by as much as two per cent early in the year, but "by the second quarter, most of the softness in the market will have gone, and we will see significant upward movement".
The first reason for this expected autumnal flurry of activity is interest rates. Long-term inter-bank interest rates have already started to fall, and the Bank of England is predicted to cut its base rate back to 4.50 or even 4.25 per cent in the latter half of 2005.
The other factor is supply: there are simply fewer properties on the market than there were during the last housing boom. In the late 1980s 14 per cent of properties changed hands. Today the figure is closer to eight per cent.
As ever, prices will perform best in those parts of the market where supply is tightest. Brits still favour traditional period terraces, and good-quality family homes outperform the rest of the market because there is a shortage of these. FPDSavills also projects that the prime London market - for properties over £1m - will outshine other sectors, after several years of negligible growth. New-build properties, especially flats, may not sell as well and developers will be open to negotiation and continue to offer sweeteners to get buyers on board.
As the market tightens, buyers are likely to be less tolerant of poor-quality properties. Prospective sellers should act now to fix obvious defects as poor maintenance will put off buyers who are already stretched by higher mortgage payments and deposits. And owners should be wary of spending money on extensions: they might not make their money back.
"Estate agents say that you never want to have the most expensive property on the street," says Charcol's Ray Boulger. "So do not extend so that your property is more expensive than those around it." That will hold true, whether the market goes up, or heads down.
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