Lower turnover and growth predicted for parts of housing market

Savills residential research department is predicting that the slowdown in the UK mainstream housing market will last well into 2008 leading to a period of low turnover and house price growth.

Lucian Cook Director Savills research comments, “Current interest levels are impacting on affordability, however as long as there remains a reasonable prospect for rates to drop below their current levels by the end of next year, we do not predict falls in average UK house prices.

“We believe that we are currently witnessing the beginning of a slowdown similar in nature to that of 2004/05, when the number of transactions reduced significantly and house price growth stalled. Unless there is a conspiracy of factors which significantly erode market confidence, we expect the market to respond by slowing for a period, allowing households to rebuild their monthly finances.”

The effects of higher interest rates already vary significantly between the regions, and looking ahead, a strong north-south divide is expected with more robust southern and prime markets being supported by a lack of supply and wealth both generated in and attracted to London. By contrast affordability is particularly constrained in northern areas which are currently bearing the brunt of the slow down.

However the one clear exception to the north-south divide is Scotland where house prices have continued to grow regardless of interest rates.

In light of growth in the first part of the year, Savills remains confident that its forecast for 7% annual house price growth in 2007 will be achieved. In 2008 house price growth will be lower given the likelihood of slow growth in the first six months of the year. Even with a market expectation that interest rates will fall back to 5.5% by the end of next year, we expect house price growth to be no more than 5%, the final figure being dependant on how quickly market sentiment reacts to the prospect of a return to a lower interest rate environment.

Cook again, “In addition to purely economic drivers, extraneous factors, such as the recent flooding are likely to have an impact on market confidence, particularly in those areas most badly affected. However the extent of the impact will only become truly apparent when the Autumn market is underway.”