Spring Property Survey: Taxes take their toll on the feel-good factor: All the figures for incomes and prices show that buyers should have been flocking back long ago, writes David Lawson

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The Independent Online
EVERY YEAR a bumper crop of hardy Easter annuals brings a sigh of relief to newspaper and television editors. Parliament may be in recess, local council meetings suspended and the courts quiet, but there is always one bankable story to help fill the yawning holiday gap: housebuyers.

They blossom like daffodils, bobbing and weaving across screens and pages to herald a bright new season. This year was no exception, helped by an opinin poll showing that one-third of the National Association of Estate Agents (NAEA) questioned said they were busier than during the same time in 1993.

Everything in the garden might therefore seem rosy. But there are two problems. First, Easter is a sham; people practically never buy homes during the holiday. 'They can't,' says one rebellious NAEA member. 'Everything is closed: banks, building societies, surveyors. In fact, many estate agents also shut up shop.'

But they do look at homes - crowding around windows, scouting locations and making viewings arranged before the holiday. And the boom in lookers - well up on last year's numbers according to the NAEA - might herald a better summer for property, as inquiries turn to offers.

Prices are set to rise by anything between 5 and 25 per cent this year in response to this pressure, depending on which pundit you believe. That would spark a greater urgency as potential buyers rush to grab a property before it gets any more expensive.

A second shadow hangs over this balmy prospect, however. In a couple of weeks new payslips will wipe the smiles off potential buyers' faces. The Budget came early this time around; we had two last year, both producing tax increases. The most worrying may be a reduction in mortgage tax relief to 20 per cent this year and 15 per cent in 1995.

The average family with a mortgage will suddenly find itself pounds 20 a month worse off. More important, first-buyers, without whom the whole market withers, will be paying almost pounds 10 a month more for the average mortgage this year and pounds 19 extra next year.

This is all irrelevant, according to an earlier poll among those same estate agents. 'It is encouraging that 85 per cent believe the tax increases will have little or no effect on recovery,' said the NAEA president, David Goldsworthy.

Andrew Longhurst, chairman of the Council of Mortgage Lenders, chose his words more carefully, claiming that the rises were unlikely to have a 'devastating' impact. Providing, that is, interest rates remain low - otherwise the roof could fall in. Rates are unlikely to rise but lenders are already hedging their bets by pushing up the cost of fixed-price loans. This edge of uncertainty could prove vital during the rest of 1994.

All the figures on incomes and prices show that buyers should have been flocking back long ago, particularly after interest rates crashed following the EMS withdrawal. There has certainly been a big revival but an unshakeable sense of foreboding about potential disaster has held back the tide.

Vested interest breeds short memories. Housebuying also took off last spring - and the one before - only to die before the summer. The first time this was blamed on the general election; last year it was the Budget; this time it could be the psychological impact of tax rises.

Only a quarter of borrowers questioned in a Britannia Building Society survey showed any optimism about being better off this time next year - and that was before the imposition of tax cuts. In fact, 40 per cent did not even realise mortgage relief was to decline.

How you view the future hangs almost entirely on your interpretation of the interplay between bare statistics and this 'feel-bad factor'. Builders, who have to get it right or lose millions, believe good times are rolling. They are selling - and building - more homes than for years. Land prices have rocketed as they look even further ahead and squabble over sites.

Yet March sales were worse than last year, according to the House Builders Federation. It hopes this is a minor hiccup ahead of the tax increases. Special deals and discounts to attract buyers have fallen away, and prices are expected to surge by next year.

Most pundits agree. Brian Davis of the Nationwide, reporting March prices almost 3 per cent up on a year ago, is another insider who dismisses the impact of tax increases. 'We expect the recovery to continue over the rest of the year,' he says. This will be fed by anticipated price rises and better job prospects.

John Wriglesworth of UBS Global Research, probably the most-quoted housing forecaster, plumps for a 7 per cent price rise this year and the same in 1995. Housing is cheaper in real terms than for a decade, he says, with first- buyers paying only 26 per cent of income compared with 65 per cent in 1989.

The fact that prices have already stopped falling is itself an incentive. This is reducing negative equity - and the fear of negative equity - bringing more than 1 million owners back into the market. They have been unable to move for years despite changing jobs, growing families and the inevitable divorces. Unemployment - a significant factor holding back buying in the last couple of years - is also falling, and will push sales 10 per cent higher this year and in 1995, Mr Wrigle sworth said.

All this assumes a return to normality after a short outbreak of madness in the Eighties. Yolande Barnes at Savills Research refuses to accept such logic, however, predicting a return to the same peaks and troughs over the next decade. 'Although confidence has been badly hit by price falls, it is a fickle factor and judging by past experience can return very quickly,' she says in Savills' quarterly research bulletin.

There is no alternative to buying for those who want substantial family housing and long-term security, and as these will always be in short supply, prices will rise.

It seems that the overall picture for the year ahead is once more as clear as mud, and ordinary buyers and sellers will have to rely on gut feeling. But perhaps they have always done so anyway.

(Photograph omitted)