After the roller coaster ride of last year’s property market, the property experts have wasted no time in airing their predictions about what the year has in store for us in terms of borrowing and buying.
Agents are suitably subdued. After the lack of stock that pushed prices sky-high but left them with, erm, a lack of stock, followed by the slowdown that higher interest rates and the credit cruch helped bring about, they can be forgiven for their ‘after the party’ mood. And don’t even get them started on HIPs!
As the year dawns, they are looking towards a market that is steady, if unexciting compared to that of 2007. According to the National Association of Estate Agents (NAEA), prices will be flat this year, while ‘underlying supply and demand factors will help to steady the market’. Further interest rate cuts are forecast, landing at around 5.25 per cent.
Peter Bolton King, chief executive of NAEA, says, ‘The international “credit crunch”, issues with Northern Rock, successive interest rate rises and launch of home information packs (HIPs) are all major events that clouded the housing market in the second half of 2007. As the market strives to right itself again it is hoped that the worst is now over; however all of these events have left behind them considerable uncertainty for 2008. Questions over future problems that may come out of America, the size of any credit squeeze and the exact impact of the HIPs roll out still hang in the air. These could well have a significant impact on the fortunes of the market.’
And prices? ‘The picture is expected to be similar, if toned down slightly, in 2008,’ he says, ‘with overall prices remaining static.‘On a regional level, London and the South East will remain strong as demand continues. Other areas, however – particularly those suffering from lower employment – are likely to see prices plateau or perhaps even depreciate over the coming year.’
Interest rates are starting to come down again following the summer’s rises, and Bolton King predicts more downward movement. ‘Further decreases in the base rate are expected for early 2008 when we may see another quarter percentage point fall. We are unlikely to experience another drop after that, however, until much later in the year. I would be pleasantly surprised if the rate was as low as five per cent by the close of 2008.’
HIPs was the story of last year, and the catfight between the interested parties in the home selling business and a government that appeared to be organising some kind of brewery-based event has been both entertaining and exasperating. And Bolton King has been scathing in his criticism of the policy and its implementation.
‘Home information packs (HIPs) have had a bumpy ride in 2007,’ he says, with admirable restraint. ‘Buyers have shown little interest and at the same time new instructions have fallen considerably. The uncertainty has by no means cleared, either. Although a whole year has passed, it seems that HIPs are as much of an unknown factor now as when we were making our predictions for 2007. The first few months of 2008 will be a telling time. I am really hoping that we don’t see instructions negatively affected by the launch of the final phase in the same way that they have been by phases one and two.’
Stuart Law, chief executive of Assetz, predicts average house price growth this year of five per cent, with interest rates falling to five per cent by December. Rents, he says, are set to rise by ten per cent.
‘While we are currently experiencing a lot of negative sentiment in the property market, this is actually no reason to set the alarm bells ringing. If people look at the fundamentals it is actually very hard to find out what all the fuss is about.
Despite a recent slowing in the rate of house price growth across the market, the average figures reported by the major indices show that house prices have continued to grow at a healthy rate over the last two or three months.’
Sub-prime lending will continue to influence the market this year. Law sees more refusals and higher rates being charged – ‘poor credit mortgage applicants struggling to achieve any mortgage offers and those who do secure an offer receiving interest rate quotes that are substantially above those of early 2007.’
‘Buy-to-let lending will recover very strongly,’ says Law. ‘Already buy-to-let mortgages are now 0.3 per cent cheaper than homebuyer mortgages due to the perceived better quality of borrower.’ Hamptons International predicts that UK prices will rise by approximately three to four per cent this year, with prime central and north London outperforming south London.
Also, Hamptons foresees that the introduction of HIPs will contribute to the slow property market early in the year, with growth below one per cent; however, this will pick up in the second quarter. 'For buyers, there should be a greater selection of properties available than we have seen for some time and with downward pressure on interest rates, the cost of borrowing should become cheaper during 2008, helping with affordability issues. For vendors, in spite of the negative speculation, there are still more buyers than properties to sell and if a property is realistically priced, it should certainly sell without too much trouble.’
Regarding buy-to-let, Bradford and Bingley forecasts an upbeat mood among British landlords. Eighty-six per cent of landlords plan to either increase their portfolio or leave it untouched in 2008, and 95 per cent are positive about rental yields, which are holding steady at 5.72 per cent.
Despite the economic challenges ahead following the fallout from the “credit crunch”, property investors are prepared to weather the storm in the markets and are in it for the long run.
Jeremy Law, head of buy-to-let for Bradford & Bingley, says, ‘The social and demographic trends that have been driving the market continue to remain strong, with rental demand remaining robust. If house prices stagnate or fall, we are likely to see demand for rental properties strengthening, leading to improved rental yields. The results from our landlord confidence survey, together with the economic indicators surrounding buy-to-let, reveal that the sector is most definitely here to stay and will remain strong.’
Kinleigh Folkard & Hayward points to the difficulty of forecasting during such tempestuous times. However, the agent expects ’08 to look more like the second half of ’07 than the first half. Neutral prices or a slight drop seem to be the order of the day for London, says KFH – but the country house market may suffer more.
Still-vibrant City bonuses will be a plus for the market, while ‘completely unnecessary’ HIPs will be a drag on the market. All in all, says KFH, ‘a challenging year for the property industry’.
Mortgages For Business sees a positive long-term picture for investors, with the rental market going from strength to strength. Higher fees will be something that buy-to-let purchasers must get used to, as lenders feel the squeeze and pass this on.
Jonathan Moore, head of marketing at Mortgages for Business, says, ‘The availability of competitive mortgage funding will be become an increasing issue in 2008, as securitised lenders who have previously sought funding from the city find new finance either harder to come by or priced at a higher level. This is due to increasingly nervous sentiment in the city towards new lending following the sub prime mortgage lending issue in the US and the Northern Rock problem in the UK.’ But, he says, ‘The buy to let market still represents a viable investment option’.
Jennet Siebrits, head of residential research for CB Richard Ellis Residential Research, predicts price growth in 2008 of three per cent, down from 2007’s final tally of seven per cent. ‘London will outperform the market, with growth rates at six per cent.’
‘We are not predicting a crash and are more optimistic than other commentators. This is largely because the economic fundamentals remain sound. In addition, the market weakness will put off some sellers; people don’t like to sell when they think they are making a loss, whether that loss is perceived or actual. Significant and consecutive house price falls happen when home owners are forced to sell. With a benign economic backdrop we do not envisage that happening. As a result we expect a thin market in 2008 with lower levels of transactions. However, following a rather stagnant year, we expect the market to pick up again.’
Meanwhile, estate agents Halifax have identified ten likely hotspots for 2008, in terms of projected house price growth. Four of the ten, as it happens, are in Scotland: Lochgelly, Paisley, Greenock and Aberdeen.
The only London location in the top league of profitable for this year is Hackney, while the Kent towns of Dartford and Chatham, both the subject of huge regeneration programmes, also make the cut. Rounding out the list are two Welsh spots, Pontypool and Newport, while the sole northen England location is Liverpool, which celebrates 2008 as European city of culture.
Regionally, southern England and Scotland are likely to record the highest house price growth during 2008 – but growth on the whole is expected to be rather modest in comparison to the house price inflation that we saw during 2007.