Uncertainty puts brake on property prices

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The Independent Online

House price gains are dropping back, under pressure from economic uncertainty and a growing mismatch between supply and demand, property analyst Hometrack will say today.

Prices rose by just 0.1 per cent in June, as new buyer registrations ground to a virtual standstill with a measly 0.1 per cent growth, while sales listings boomed by 2.9 per cent. The result is prices rising in a bare 11 per cent of the market. And in nearly 3 per cent of the market prices are falling.

Growth in demand has now been slowing for four consecutive months, with six out of 10 regions seeing a fall in new buyer registrations this month. The most significant drop was in London, where registrations fell by 0.9 per cent compared with May.

The rising supply of housing for sale is now outstripping demand increases by three times, with supply up 15 per cent in the past three months compared with a mere 4.9 per cent increase in demand, according to Hometrack.

Market sentiment has come under considerable pressure in recent months, first from the General Election and more recently over concerns about the future health of the economy, according to Richard Donnell, the director of research at Hometrack. A continuing lack of mortgage finance is also a factor. And last week's austere Emergency Budget will only add to the market's sense of uncertainty.

"The Election and Budget have highlighted the scale of the challenge facing the Government in balancing the public finances against individuals' household spending," Mr Donnell said. "In the coming months we expect market conditions to remain subdued with prices likely to track sideways at best, but with the distinct possibility of small month-on-month falls."

But Hometrack is not predicting a serious drop in prices because the number of sales being agreed is still rising – albeit from a very low base. "As long as agents see sales still taking place, there is no real impetus to reduce pricing," Mr Donnell said. "Cash buyers and those purchasing with small mortgages continue to account for a sizeable proportion of the market."

At the top end, the situation is rosier. The average price of the top 25 per cent of properties rose by 1 per cent to £456,983 in June, giving a modest annual growth figure of 1.1 per cent, according to the estate agency portal Primelocation.com. But the top 10 per cent of the market saw prices rise by 1.1 per cent to £639,536, producing annual growth of a whopping 4.1 per cent, double the rate of the market as a whole. The average asking price in the top 25 per cent of the London market is now £1.1m.