Assetz® News - Assetz House Price Watch Sustainable Growth for House Prices Still the Most Likely Outcome for 2008

Assetz House Price Watch Sustainable Growth for House Prices Still the Most Likely Outcome for 2008

21st January 2008 |

Assetz House Price Watch is the only fully inclusive summary of all the major UK house price indices, providing a comprehensive overview of market activity

The five major UK house price indices show an average of 6.4% annualised growth for the twelve months prior to December 2007. This shows a 1.5% decrease in the annual rate of growth recorded in November (7.9%) and a 3.9% decrease since December 2006 (10.3%).

Necessary slowdown in price growth as 2007 ends…

Annual house price growth slowed significantly as 2007 drew to a close, falling back further from the year low recorded in November (7.9%) to end the year at 6.4% - the lowest level of annual growth since June 2006. While annual price growth was slightly lower than expected, a significant slowdown was necessary with the current level of growth unsustainable at above the long term 7% average. However, this has not impacted harmfully on the average UK house price, which remains strong, recording only a marginal fall on November’s figure.

Bank of England continues to play dangerous waiting game with UK economy…

The industry welcomed the Bank’s move to lower the interest rate base level to 5.5% at the beginning of December, but called for more decisive action and further reductions in the new year. However, the MPC opted to hold rates in early January, possibly reacting to attempts at political meddling by both Gordon Brown and Alistair Darling. With a level of around 5% or lower cited as the neutral level required for interest rates this year, the latest decision to hold rates could lead to more hasty cuts later in the year as the Bank struggles to regain control of a slowing economy.

Investors to benefit from continued supply-demand imbalance…

In spite of the rate of house price growth slowing down at the end of 2007, the average UK house price remains high. Demand from tenants is expected to be particularly strong during 2008, a view endorsed by most close industry observers. Continued immigration will keep demand for new homes near its current high level and news that many developers are planning to reduce housing development significantly this year and next will exasperate the supply-demand imbalance further. Buy-to-let investors will continue to benefit from the large number of people looking to rent in the current climate and can expect excellent returns as interest rates fall and rents rise.

First time buyers should act now…

While first time buyers are likely to be nervous following recent headlines in the press, this negativity has also impacted on vendors and developers, some of which are prepared to offer reduced prices and incentives in order to sell quickly. This represents an excellent opportunity for first time buyers to pick up a bargain over the next few months whilst sentiment is poor.

Average UK house prices stabilise…

The average house price in December 2007, taken from the average price provided by all five major indices was £212,047, down from £213,421 in November. This shows a decrease of £1,374 in the value of the average property and an increase of £12,799 in the twelve months from December 2006, when the average price of a home was £199,248.

Stuart Law, Chief Executive of Assetz comments:

“It is difficult to see anything other than another successful year ahead for UK buy-to-let investors in 2008, who are positioned to benefit as the reducing number of homebuyers offers the potential for excellent returns from increased rental demand, and as the Bank of England reduces mortgage rates. Huge numbers of people are favouring rented accommodation in the current climate, as they wait to gain a clearer perspective on the future of the housing market. The rental market continues to favour one and two-bedroom homes, which have been the most common property for landlords over recent years.

“When interest rates do inevitably fall, property investors will benefit from a significant reduction in borrowing costs as many landlords are on base rate tracker mortgages and can expect excellent returns on investment as interest rates drop and rents rise. The current shortage of property in the UK is a serious problem and cannot be resolved with a quick fix. As a result, prices will strengthen again in due course as the fundamentals of the market are still intact.

“Although inflation for 2007 as a whole finished largely in line with the Bank’s target of 2.0% (2.1%), the threat of an economic slowdown and current retail pressures on the high street are fuelling the need for a cut in interest rates next month.

“In conjunction with the recent injection of liquidity into the lending markets, the Bank can also act to calm the nerves of the banking sector with base rate reductions. These could be as low as 4.75% later in the year, with current inflation data suggesting this level is achievable without necessarily inducing inflationary effects. Some commentators are suggesting that even lower base rates are possible, but we reserve judgement on this as comments on the threats to the UK economy are possibly overstated.

“Despite recent negativity across the market, the current climate poses an excellent opportunity for first time buyers who should strike while the iron is hot and take advantage of some nervy moves from developers and vendors looking to sell quickly, with reduced prices and tempting buyer incentives currently available. Unfortunately we do not expect this to be too widespread, and would-be first-time buyers will continue to enter the private rented sector in greater numbers than those opting to purchase.”

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/3978.html. Alternatively, please see our full press release archive.