Estate agents predict a steadier year for house prices

The National Association of Estate Agents (NAEA) is predicting a steadier year for house prices across the UK in 2007, with regional variation being a key characteristic of the market as property supply continues to be an issue in many places.

Interest rates will have a vital role to play in ensuring that struggling areas are able to weather the difficulties. Meanwhile, the proposed HIPs legislation presents huge uncertainty for the market.

Average house prices

Following a difficult year in 2005, the majority of 2006 has seen a healthy market with average house prices having risen around 9 per cent since January. This positive trend is expected to continue in 2007, but at a slower pace with the NAEA forecasting rises of around 5% over the year.

Regional differences in supply and demand

While the market has always been subject to regional variations, these are likely to become more pronounced in 2007 as the issue of property supply comes to the fore. The latter part of 2006 has seen the gap between areas struggling to find property and those where supply is not such an issue widen markedly.

Shortages in the South East have led to high prices and a high pace of activity, which is distorting figures on a national level. While the overall picture may look positive, a number of areas across the UK have been experiencing a much flatter market. These regions have not been helped by two interest rate rises over the last four months.

Interest rates

Following the increase of interest rates to 5% in November, leading economists are now divided over the movement of rates in the early part of next year. While the recent rises may help to calm house price inflation in London and the South East, there are a number of already underperforming areas across the rest of the UK that are likely to suffer further if there is another rate rise.

With this in mind, the NAEA is warning the Bank of England not to be governed by the London market when making decisions on interest rates next year.

Consumer confidence

Consumers have demonstrated a renewed confidence in 2006 and the NAEA expects this to continue into 2007.

With many set to take advantage of the higher lending multiples now being offered by banks, some could run into problems if there is a significant rise in interest rates. The NAEA is advising home buyers to plan carefully and be realistic about what they can afford in 2007.


First time buyers

Although NAEA estate agents have reported an increase in the number of first time buyer sales recently, first timers are likely to continue experiencing difficulties next year if issues such as affordability and stamp duty remain unchecked. The NAEA urges the Chancellor to seriously consider these when looking at his budget for the next financial year.

HIPs

The proposed HIPs legislation – due to come into effect in June 2007 – looms as an unknown factor when making predictions for the coming year. With June usually a busy time for estate agency, it is uncertain what effect the Packs will have. The usual trends of supply and demand are likely to be severely disrupted with buyer reactions hard to predict.


Peter Bolton King, Chief Executive of the NAEA, comments: “In what is likely to be a quieter year than 2006, we are expecting to see modest price rises and a continuing rise in consumer confidence. I firmly believe, however, that it is going to be increasingly difficult to make generalisations about the market as we see the gap between under-performing areas and those holding steady widen even further.

“While it may be a quieter year for prices, the housing market itself could be facing significant change with the proposed HIPs legislation. This is creating huge uncertainty for the market and is a situation we will continue to be watching closely moving into next year.”