At the beginning of 2002, Paula John of Your Mortgage magazine asked a number of industry experts for their predictions on the state of the housing and mortgage markets at the year’s end. Johnny Turner looks at how accurate they were
For the twelfth year running, Your Mortgage magazine asked prominent mortgage lenders and advisers to predict how much house prices would move during the year, as well as to forecast what mortgage rates would be as 2003 dawned.
The experts predicted that house prices would keep rising throughout 2002, despite rumours about recession that were circulating at the time. They said, however, that prices could not continue rising at the ‘unsustainable’ rate that the housing market saw in 2001. We now know that prices defied expectation last year and that 2001’s rises proved very sustainable indeed.
As we enter 2003, there is still trepidation over the state of the economy and the word ‘unsustainable’ is yet again one of the favourite adjectives of housing market pundits. But 2002 was full of horror stories about the collapse of the pensions market and underperforming shares – and people still consider bricks and mortar one of the safest long-term investments there is. House prices rose by a phenomenal 25 per cent over last year, according to Nationwide Building Society, which makes the experts’ forecasts in this area look positively timid. The average prediction was 4.66 per cent. The most accurate prediction came from Egg, whose director of lending Trevor Field thought the annual rate of house price inflation would be eight per cent. The least accurate was Woolwich, predicting a rise of only two per cent.
As for interest rates, there was no movement whatsoever from the monetary policy committee of the Bank of England, the body responsible for setting the base rate. A four-decade low of four per cent had buyers in a frenzy as buying remained very popular indeed, particularly in the buy-to-let sector. For the purposes of this survey, the agreed measure of interest rates is the Halifax standard variable rate, currently 5.75 per cent – and in this category the experts fared much better, with an average prediction of 5.66 per cent. Both Charcol and Savills Private Finance hit the bulls-eye with their interest rate forecasts.
Last year’s housing market held many other surprises as well. The north/south divide found itself turned upside down by the end of the year, as prices in London and the South East either slipped slightly or grew more slowly than traditionally cooler markets such as Yorkshire and Humberside. And the fact that so many flocked to the buy-to-let market led to a fall in rental yields in many parts of the country, particularly in London.
As ever, the housing market in 2002 showed itself to be a capricious and unpredictable beast. But whatever the state of the market – and whatever the experts see on the distant horizon – a prospective home buyer is best advised to stick to the basic rules with which any expert would agree: think of property as a long-term investment and don’t borrow more than you can afford to repay. And that is good advice whatever year it may be.
Keep up with developments in the housing and mortgage markets at www .hotproperty.co.uk