Outlook for 2011 is positive
The company believes that UK house prices will continue to increase moderately by up to 5% in 2011 but threats remain. It believes that London property price growth is at risk from the strengthening pound and housing allowance caps.
New housing supply will continue to be poor as developers struggle to build, underpinning both prices and rents in the face of substantial demand, according to Assetz, with rents to accelerate further, even in city centres, underpinning values with strong rental yields.
It also believes that increased competition in mortgage lending will continue and lead to better LTVs and rates for new borrowers in Q1 2011.
Commenting, Stuart Law, chief executive of Assetz, said: “The outlook for house prices in 2011 is set to end the year with positive annual growth for the second year running which we forecast after fairly balancing the negative and positive factors driving the market.
“The only negative year for house prices in the past decade was 2007 with 12% falls recorded in what was close to financial Armageddon for the western world. During 2011 there is likely to be modest further growth in house prices and the UK could end the year with an overall 5% increase although many risks remain.
“There is still very little to suggest that a double dip to new lows, predicted by many commentators, will come to fruition in 2011.
“As we correctly forecast last year, Government pressure on lenders to reduce margins and increase lending, as well as good old-fashioned competition saw 2010 deliver our forecast improvements in loan terms for new borrowers. Nonetheless mortgage availability remains poor for those without a significant deposit or without a perfect credit history and mortgage lending remains, without doubt, the most significant negative factor for 2011.
“We do expect new loan products to enter the market in 2011 permitting higher loan-to-values than were available this year with 90% mortgages making a comeback to a limited degree.
“Another significant potential market risk is the FSA’s mortgage market review and its suggestions that interest-only mortgages should effectively be banned.
“The effect of such a policy and its increase in household outgoings for repayment mortgages would be very severe on the UK housing market. If this was implemented, despite extreme levels of objections from the industry, it could become the most significant negative factor in the market and all of the positive factors together may well struggle to maintain overall positive house price growth.
“Nonetheless it is for this very reason that we doubt anyone would be foolish enough to introduce such a policy at such a weak moment in the market given how much UK plc depends upon the value of its housing stock.
“Mortgage affordability is however extremely important for market stability but such changes need to be introduced gradually and during a period of market strength.”