ISSUE 9/07

Property values in 2007

House prices are set to rise again in 2007, although less steeply than in the past 12 months.

2006 saw unexpectedly high price increases of about 8% on average in the mainstream UK market and up to 25% in the best areas of central London, such as the West End and Mayfair.

Leading market experts predict lower price inflation for the year ahead. Amongst the estate agents' forecasts are Cluttons - 3%, Hamptons and Jones Lang LaSalle - 5%, Knight Frank and King Sturge - 6% and Savills - 7%. Amongst the property economists, the Royal Institution of Chartered Surveyors says 3%, Hometrack 4%, and the big mortgage lenders at the Halifax/Bank of Scotland and the Nationwide Building Society are forecasting 5%.

Although their forecasts differ, they demonstrate a number of common trends that combine to push up prices.

Firstly, stamp duty paid when we move house is a disincentive to step up the property ladder.

"80% of us move within a 20-mile radius and don’t move to bargain properties in lower priced areas. Therefore we have to stump up vast sums for stamp duty with no obvious advantage" says Richard Donnell of Hometrack, a property consultancy that advises local authorities and government departments.

Secondly, the first half of 2007 will be busier than the second as agents are expected to urge sellers to put their homes on sale before the arrival of Home Information Packs in June.

Thirdly, as affordability is tight across the country, first time buyers will find it tougher to purchase.

"Wage growth is well below property price increases, so people will feel the squeeze across most parts of the country” says Liam Bailey, head of research at Knight Frank.

Fourthly, there will be strong regional differences. Prices will rise, possibly 10% or so, in London, the south east of England, Scotland and Northern Ireland but elsewhere house price growth will be much lower, especially in northern England.

Pundits also agree that the strong national economy and need for more homes - fuelled by higher divorce rates, immigration and people living longer - will mean that demand for properties on sale will outstrip supply. The result? Prices will continue to rise.

As Yolande Barnes of estate agent Savills puts it: "There's no mechanism for prices to slow while the economy remains buoyant and when there's not enough property available of the right type in the right places."

Article by Graham Norwood