Next year is set to be another tough one for the UK housing market, but there is a glimmer of hope that prices may at least hold their own until recovery in 2012. There are four big influences to look out for in the next 12 months, say experts.
First, prices are predicted to fall slightly early in the new year before recovering from the summer onwards if the wider economy also improves. The Royal Institution of Chartered Surveyors forecasts price falls of up to 2 per cent early in 2011, especially in areas such as the north of England with the largest number of public sector jobs vulnerable to cutbacks.
But it says the shortage of homes on the market and the low numbers of new houses being built will ensure that ‘the gentle downward trend in prices currently taking place is at least partly reversed as the year wears on', promises Simon Rubinsohn, RICS’ chief economist. There has already been evidence of these price falls in the pre-Christmas period. Sales website Rightmove.
co.uk says the asking price of a typical home across the UK dropped 3 per cent - the equivalent of almost £7,000 - in the four weeks leading to mid-December, while in London asking prices slipped as much as £21,000. But many industry insiders believe this is a short-term issue. One consultancy, the Centre for Economics and Business Research are predicting a year of two halves with banks starting to lend in the second part. But it believes that the biggest increases will have to wait until 2012 and beyond. ‘House prices may not move much during 2011, but they're likely to rise significantly in the following three years, ’ says CEBR chief executive Douglas McWilliams. The second major influence in 2011 will be that London's house prices should perform more strongly than the rest of the UK.
Central London in particular - including the West End, Notting Hill and Mayfair - will see price rises of 5 per cent or even more next year, and then increases of 7 per cent or above in 2012. Some believe this will be due to the ‘Olympics effect’. ‘Some parts of London are now seeing higher house prices than their previous peak in 2007, ’ says Peter Rollings, of London estate agency chain Marsh & Parsons.
‘With more properties coming to the market, prices will go up at a sustainable rate next year. London will remain a magnet for both UK and overseas buyers.
'Locations such as Kensington and Chelsea, and Westminster are at their highest on record, having risen 9.7 per cent and 7.6 per cent respectively in the past 12 months, ’ he adds.
The third key issue for 2011 will be the stubbornly low level of people moving home. There used to be well over a million households buying and selling each year as recently as 2007, but the credit crunch and falling houses prices have put a stop to that.
'We can't foresee circumstances that would boost transactions in 2011 beyond the £550,000 to £650,000 range.
We could see increased competition leading to slightly more mortgage lending in the second half of 2011, a trend that will hopefully continue into 2012 and beyond, ’ says Miles Shipside , commercial director of Rightmove.co.uk. Buyers will be further deterred by the rise in VAT to 20 per cent on January 4. That will push up the fees charged by conveyancing solicitors, surveyors and even removals firms, and could add hundreds of pounds to the cost of a typical move. The fourth important element of next year's market will be rents - they have been soaring for the past year and are set to do the same in 2011. Lettings agency Douglas & Gordon predicts rent increases of 5-10 per cent in London in the coming year; other lettings firms say this will be mirrored across the country. ‘Many people have turned to the rental market because they fear further price reductions in the sales market or because they can't obtain the necessary finance to buy. As a result, rents continue to rise with supply failing to keep up with demand, ’ says Jeremy Leaf, a lettings agents and the RICS’ rental market spokesman.
However, there are indications that more landlords are looking to add to their portfolios, especially as there has been a rise in the number of investment mortgages in recent months. ‘ But if there is little New Year cheer in the housing market, there are at least some causes for relief. Although there were 36,000 homes repossessed in 2010 - fewer than many had expected, given the problems of the broader economy - the figure next year is forecast by the RICS to drop to 33,000 or fewer. The Government is also launching a new campaign to stop the illegal sub-letting of up to 50,000 social housing sector properties. The problem affects only one in 100 homes in some areas, but as many as one in 20 in inner-city locations, according to housing minister Grant Shapps. He is spending £19million to clamp down on the problem and free the homes for tenants in genuine need.
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