House prices rise but economists remain cautious

Rebecca O’Connor, Property Correspondent

House prices continued to rise last month, fuelled by cheap borrowing rates and a shortage of homes coming on to the market.

Halifax has reported a 1.6 per cent increase in prices in September, the third consecutive monthly rise and the fifth that the lender has recorded this year. Yesterday’s figures came a week after Nationwide reported that prices had risen by 0.9 per cent last month and will accelerate hopes of a market recovery.

However, economists remain unconvinced that prices will continue to rise to the same extent and have forecast flat growth with monthly fluctuations for the rest of this year and into next.

House prices have risen by 1.7 per cent since the end of last year, to an average of £163,533, and are up by 5.9 per cent since an April low of £154,490, bringing the annual fall over the past 12 months to 7.4 per cent.

On a quarterly basis, prices increased by 2.8 per cent from July to the end of September, the first quarterly rise for two years and the biggest since the first quarter of 2007, when Halifax recorded a rise of 2.9 per cent.

Martin Ellis, chief economist at Halifax, said: “The combination of increased demand and a low level of properties available for sale has pushed up house prices in recent months. The marked improvement in affordability due to the reduction in both property prices and interest rates since mid-2007 has been a key factor in stimulating higher demand.”

Although market analysts agree that prices are unlikely to fall back to their April lows, the muted outlook is a result of concern over unemployment levels and the lack of access to mortgage finance, especially for first-time buyers.

Experts also said that a rise in interest rates and an increase in the number of properties coming on to the market could undo some recent gains. The Royal Institution of Chartered Surveyors reported an increase in stock last month and instructions received by estate agents were up to 30 per cent higher last month than in September 2008.

David Smith, of Carter Jonas, the property consultancy, said: “Compared to only a few months ago, there is now far more uniformity across the various house price indices. However, we have to expect more turbulence ahead, especially given rising unemployment and the fact that, at some point, interest rates will have to rise. At that time, the current price revival will likely plateau or even go into reverse, albeit temporarily.”

Jennet Siebrits, head of residential research for CBRE, said: “The number of sellers has started to rise, and this is expected to continue through the autumn. If last month’s fall in the number of househunters continues, this could redress the supply-and-demand equation in favour of the buyer, leading to further house price falls.”

Estate agents in London said that they expected the market in the capital to continue to improve, thanks to an influx of cash from foreign buyers and a short supply of good-quality family homes.

Those concentrating on the super-prime end of the market said that a select few properties in London were selling for pre-downturn prices again. Peter Rollings, managing director of Marsh & Parsons, the estate agent, said: “We had a house in Notting Hill priced at £3.6 million that attracted 24 prospective buyers in two weeks and received three asking-price offers. Pent-up demand is building, with some houses going for same prices as were achieved in 2007.”

The overseas buyers trend has also begun to filter out to the Home Counties, where wealthy foreign billionaires are seeking traditional country homes.

Cottage Industry: Case study

In 1998 Maureen Putnam, of Stratton, near Dorchester, took out a £30,000 mortgage with Barclays on her £120,000 home. In return for paying no interest on the loan, the mortgage requires Mrs Putnam to surrender 75 per cent of the gain in the value of her home over the course of the mortgage.

Her two-storey thatched home is estimated to be worth £250,000. If she closed the mortgage now, Mrs Putnam would need to pay Barclays £97,500 — 75 per cent of the appreciation of the property— in addition to the original loan of £30,000. That means that she would need to pay the bank £127,500 for borrowing £30,000 over 11 years. Mrs Putnam says that she is unable to sell her property because she will not have sufficient funds to buy a replacement home.

(Rebecca O’Connor, The Times)


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