Changes to house rules as prices defy the odds

After many property experts predicted prices in the housing market would stay flat this year, there is evidence that price forecasts are being moved upwards. Below: Simon Rubinsohn.

After many property experts predicted prices in the housing market would stay flat this year, there is evidence that price forecasts are being moved upwards. Below: Simon Rubinsohn.

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Housing market pundits are moving the year’s property price forecasts upwards, after largely predicting they would stay flat.

At the start of the year, housing market experts generally agreed that any increase in prices across the country would reach two per cent at most.

Simon Rubinsohn

Simon Rubinsohn

But now, property search website Rightmove has doubled its forecast for 2013 to four per cent after seeing three months in a row of house sellers asking record prices. The hat-trick was completed over May, June and July.

Everywhere you look, there are reports of a return to confidence in the housing market, with sellers appearing more bullish about sticking to asking prices as demand strengthens among would-be buyers – many of whom are now finding they can get a mortgage after years of struggling to be accepted by lenders.

For their part, banks and building societies have said that their “risk appetite” is returning too. Evidence of this was shown in recent figures released by the Council of Mortgage Lenders, which said that first-time buyer numbers have hit their highest levels for five and-a-half years.

As well as freeing up some stuck housing chains, some analysts say that the increase in first-time buyer numbers is putting an upward pressure on house prices.

The number of homes on the market is in relatively short supply at a time when “pent-up” demand from buyers is being unleashed thanks to mortgages becoming easier to obtain. By basic definition, first-time buyers do not increase this supply as they are not bringing any homes to the market to sell.

Much of the focus on house price growth has been on London, which has seen a 12 per cent increase in asking prices over the last year to reach an average of more than half a million pounds.

But while there are still strong regional variations, some commentators are starting to talk about a broader recovery across the country. Rightmove says that asking prices are now up year-on-year in all regions across England and Wales for the first time in nearly three years.

Several initiatives introduced by Westminster have boosted buyer numbers and competition among mortgage providers has become much fiercer since the Government launched a scheme called Funding for Lending last August, giving lenders access to cheap finance to help borrowers. Lenders have been trumpeting some of their lowest-ever rates and mortgage availability has generally increased.

Other Government schemes, such as NewBuy and Help to Buy, have been specifically aimed at giving a helping hand to borrowers with deposits as low as five per cent.

Some innovative deals which have recently come to market include one from Leeds Building Society, which allows people to delay the interest on their mortgage payments for up to six months, allowing them to cut their initial costs so they can spend money on furniture or redecorating. Halifax also had more than 13,000 takers for a recently-closed offer it was running which reimbursed first-time buyers for their stamp duty.

People are also becoming more convinced that house prices are rising rather than falling. Research released by Halifax found that confidence among Britons believing house prices will rise in the next 12 months is at its highest in at least two years.

The news of these rising house prices has fuelled fears that efforts to kick-start the housing market could eventually lead to another property bubble, with mortgage borrowers trying to stretch their finances too far.

The Government’s flagship Help to Buy Scheme, which from next year will allow lenders to use Government-backed guarantees to offer £130 billion of low-deposit mortgages, has generated particular controversy.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics), believes it is too early to rush to any conclusions though. He highlights stricter rules about mortgage lending due to come into force next year, which could help to put the brakes on.

Some analysts have also suggested that despite the growing confidence, would-be buyers feeling the pinch of high living costs are still “price-sensitive”. Any indication that sellers are coming to market with unrealistic expectations about what price they will achieve could result in a stand-off between sellers and buyers, bringing sales juddering to a halt as some sort of compromise must be reached to get the market going again.

Halifax’s housing economist Martin Ellis also now believes prices in 2013 could surpass his original predictions of up to two per cent, but he also cautions that sluggish wage growth and house prices already being high compared to earnings will continue to dampen the market.

Factors like this, he says “are likely to prevent a sharp further acceleration in house prices”.

Rubinsohn also points out that the housing market needs more “oil on the wheels” to get going in some parts of the country than others.

“What’s right for Blackpool is not necessarily right for (London suburb) Blackheath,” he says.

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