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Price rises return

Amanda Jarvis

December 20, 2005

House prices have started to rise again for the first time in 15 months.

The three months to November saw 4 percent more chartered surveyors reporting rises in prices than falls. October’s figures showed a balance of 8 percent reporting falls.

Buyer enquiries have consistently risen over the past six months and the market slowdown appears to have come to an end. Relatively low interest rates and a healthy job climate have helped avoid the housing crashes that have followed previous slowdowns in the 1970s and 1990s. The graph below illustrates the market’s movements over the past two years.

Surveyor confidence is at its highest in 18 months and property sales for November have increased. Market conditions are tightening as the level of property coming onto the market continues to fall, returning the bargaining initiative to the seller.

The decision by Gordon Brown not to allow residential property to be included as part of a Self Invested Personal Pension (SIPP) has diminished property investment possibilities, though RICS does not expect this to have an impact on the market next year. However, individuals may soon be able to take advantage of property investment tax breaks by using a Real Estate Investment Trust (REIT) to invest indirectly in residential property.

In the coming year, RICS expects a rise in UK house prices of 4 per cent in 2006 and 4 per cent in 2007. RICS predicted an upturn of 3 per cent for 2005 based upon the ODPM index, which is likely to be close to the eventual figure to be announced in February.

The modest pick-up in house price rises for next year reflects the impact of the August interest rate cut, as well as a lift from a further expected 0.25 per cent interest rate cut in the first half of 2006. However, if wage data due out early next year is particularly weak, the Bank of England will be dissuaded from further cuts.

With the housing market showing signs of a recovery from a marked drop in activity in the latter half of 2004, purchases are also expected to rise firmly in 2006, having fallen for two successive years. RICS expects mortgage approvals to rise from a five year low of 1.127 million in 2005 to reach 1.336 million in 2006.

RICS spokesperson Ian Perry says:
‘All the numbers point to renewed price rises. There is a universal expectation from agents that interest rates are heading down again in the new year, which is providing the market with confidence.

‘The biggest increases have been seen in London where city bonuses are expected to help the market along in the coming months.’

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