What will happen to house prices for the rest of 2011?

Wednesday, 11 May 2011 03:00

By Kate Saines

It's spring – the housing market's busiest time. But being slap bang in the middle of an economic crisis makes buying and selling an uncertain business for buyers and sellers alike, even during this normally buoyant season.

While, it seems house prices are still way beyond many people's reach – particularly if you are a first time buyer – demand is also low. It's pretty confusing.

So if you are thinking of making a property purchase, or want to put your home on the market, we've gathered some expert opinion to find out what is really going on.

The story so far

Most people obtain their picture of the housing market by looking at figures from some of the indices which track house prices.

Last week Nationwide's index revealed that in April house prices fell by 0.2 per cent, and over the last year they have fallen by 1.3 per cent.

However, it also said the three-month on three-month measure of prices – which it takes to be a better indicator of the state of the market – showed prices had gone up by a modest 0.6 per cent.

So, have prices gone up or down this year, you might well ask?

Enter Halifax, who this week unveiled its statistics to show house prices in the three months up to April 2011 were 1.2 per cent lower than the previous three months.

April itself saw a 1.4 per cent fall in prices, following no change in March, said Halifax.

The firm's housing economist, Martin Ellis, blamed falling prices on the fact people were lacking in confidence in the housing market because of the uncertain economy.

The Land Registry's figures (released last week) also revealed prices were moving downwards.

However, Attetz House Price Watch, a compilation of monthly average figures taken from the five major house price indices, also provides us with a summary of the year so far.

Its take on the state of the housing market shows that UK house prices rose steadily in the first three months of 2011.

However, prices were slightly lower during that period than at the same time last year. That is 0.5 per cent lower, to be precise.

Stuart Law, chief executive of Assetz said: "UK house prices have shown resilience in the face of the government's spending cuts, recouping losses witnessed at the end of 2010 in the first few months of this year."

It's a different story if you look at mortgage approvals. While house prices statistics show at worst a modest decline in prices – which would suggest a small drop in demand – the number of people taking out mortgages reveals a far more dramatic slump.

Bank of England lending figures revealed the number of new mortgages fell by 60 per cent in March

Figures on net lending have tumbled as 2011 has progressed which is down, in part, to fewer property purchases being made.

So, in summary, it would appear that while prices are wavering but tending to fall, fewer people are currently buying homes and taking out new mortgages.

And, it seems safe to say, that prices are lower in April 2011 than they were last April.

Predictions for the rest of the year

While it's impossible to tell you exactly what will happen to the housing market as 2011 progresses, there are plenty of experts and economists more than happy to provide their predictions.

Martin Ellis, the Halifax housing economist, said there were signs that house sales were stabilising, albeit at a lower than historical average.

This is obviously good news. But what cannot be ignored is the fact the lack of mortgages and finance available for first time buyers is slowing the market.

Basically, first-time buyers fuel the market by buying homes owned by second-time buyers who in turn move up the property ladder by purchasing houses from third-time buyers and so on.

Without the essential injection of new money first-timers provide, the future can look bleak.

But Stuart Law of Assetz, thinks mortgage funding schemes being introduced will help with this problem and this will help create a rise in prices in the next three months.

He explained: "The launch of FirstBuy Direct, a new government scheme which will allocate a share of £250 million to at least 10,000 first time buyers, will work in tandem with a number of other shared equity schemes available to increase demand at the bottom of the market."

And he believes better incentives for buy-to-let customers will also provide a boost.

"The decision to make investors pay Stamp Duty on the average value of properties purchased rather than their total value will also encourage professional landlords and larger institutional investors into the market.

"These buyers have played an increasingly important role in supporting house prices over the last few years."

There are other factors which affect the housing market – inflation, interest rates and employment figures are among them.

Mr Law believes recent falls in inflation and unemployment have helped boost customers' confidence. He said sellers have been optimistic when pricing properties for sale.

"These factors," he said, "combined with limited supply of property with improving mortgage ability, will continue to deliver an upwards curve in house price growth this year."

He expects property values to rise by five per cent in 2011.

So, the overall consensus from the people who compile the statistics seems to be positive. Prices look set to increase and demand will also strengthen.

Read more: First-time buyers guide to home-buying and mortgages

But what is the view of people working in other areas of the property market?

Lisa Shenton is a partner with law firm, Irwin Mitchell's conveyancing team. She said that figures would suggest some improvements are being seen in the sector.

But, she warned, this is not an indication the market is turning a corner.

Ms Shenton explained that Spring is one of the busiest times in the market, so statistics will reflect this.

She added: "The conveyancing team here at Irwin Mitchell have experienced a busy April for completions, but mortgage lending remains subdued and most of those buying are able to provide a generous cash deposit for themselves or are borrowing from family to fund the deposit."

Still confused about the state of the property market? Well, this is probably down to the fact that it is mirroring the erratic nature of the economy and people's confidence in it, suggests Nicholas Ayre, a director of UK buying agents Home Fusion.

"Rationalise it all you will," he said, "but nobody really knows what is going on, whether the economy is recovering or on the cusp of further decline.

"The same applies to the property market."

He said that given the low demand, it's no surprise property prices have fallen. He explained that there are isolated spots in the country where the property market is healthier – such as London.

"But overall from a UK perspective, the property market is still very much on the back foot," he concluded.

Use the Myfinances.co.uk comparison tools to find the best deal on a mew mortgage.

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