Commercial Insurance Articles
Outlook for the 2010 housing and rental markets
02 Mar 2010
When it comes to the state of the property market, there can be conflicting opinions and information.
Despite continuing reports of house price increases, there have been recent indications from market commentators that the situation could still get worse before it gets better.
Halifax recently released a report which suggested that first-time buyers (FTBs) were finding housing affordable again. The research said that FTBs on average earnings in almost four in ten local authority districts could afford homes.
"Housing affordability for potential first-time buyers has improved substantially over the past two years due to the combination of lower house prices and reduced mortgage rates," said Martin Ellis, housing economist at Halifax.
Nevertheless, he acknowledged: "The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates."
However, Paul Holmes, chief executive office at Firstrung, said that the report from Halifax, which came under the headline "Housing affordable for first-time buyers in four in ten areas" was "nonsense".
"What they were saying was that […] first-time buyers who had 20 to 25 per cent deposit were finding it affordable," he commented.
"You point out to me the average first-time buyer up and down the length and breadth of this country that can easily put their hands on a 20 to 25 per cent deposit – there aren't any," Mr Holmes added.
Figures from the National Association of Estate Agents (NAEA) also contradicted the report, showing that the proportion of FTBs looking to step onto the property ladder reached its lowest levels for 12 months in November.
Halifax's house price index also suggests an improvement in the market, with the latest report for December saying that values increased for the sixth consecutive month. The rise was slight, however, at just one per cent between the last two months of the year.
According to the report, prices in the final quarter of the year were 3.5 per cent higher than in the previous three-month period. Halifax said that this was the biggest quarterly increase since the fourth quarter of 2006. In addition, values rose by 9.4 per cent since they hit a low in April 2009.
"The prospects for the market this year will depend on how the UK economy evolves and whether there is a significant increase in the supply of properties for sale," commented Martin Ellis.
"Overall, our current view is that house prices will be flat during 2010," he added.
Mr Holmes contradicted this, however, suggesting that prices would continue to fall over the next two years.
"I've always maintained that from peak to trough we will see a fall of about 35 per cent," he said.
"From the peak of house prices – August or September 2007 – to probably mid-2011 we will see a total combined fall of 35 per cent, so we are roughly half way through that correction," Mr Holmes added.
Despite some questions surrounding the accuracy of Halifax data, Land Registry figures seem to back this up. The latest figures from the Government's official index show that prices rose by 0.9 per cent, which represented the sixth month in a row in which movement was over zero per cent.
According to the Land Registry, November also marked the seventh consecutive month that the annual rate of decline decreased, although prices are still 0.3 per cent lower than they were a year ago.
The report said that the average property price stood at £161,554 in the penultimate month of 2009, compared to Halifax's £169,042 December figure and Nationwide's sum of £162,764 for November.
Nationwide also reported that most UK regions saw house prices rise last year, with the annual change at 5.9 per cent.
The bank suggested that there would be a number of factors affecting property values in 2010, such as interest rates, the ability of cash-rich buyers to support housing demand and the outlook for the labour market.
"At this stage, therefore, it seems likely that 2010 will see no significant house price movements in either direction," said Martin Gahbauer, chief economist at Nationwide, echoing the prediction from Halifax's Martin Ellis.
"However, the experience of 2009 demonstrates how unpredictable the market is at the current juncture and that one should always be prepared for the UK housing market to surprise," Mr Ellis added.
The NAEA also predicted that prices would remain flat or even drop slightly in the first six months of 2010, before picking up again and remaining stable during the second half of the year.
Peter Bolton King, chief executive of the NAEA, said that the end of the stamp duty holiday, the increase in VAT to 17.5 per cent and the general election would all affect activity in the market.
"This means that some people will adopt a wait and see attitude to housing as they study what tax changes will mean for them and how the election is likely to play out," he suggested.
These fluctuations within the housing market inevitably affect the rental sector.
The Association of Residential Letting Agents (ARLA) said that there was a danger that demand for rental property would outweigh supply in 2010.
"As demand rises, in particular due to a lack of social housing, there will also be mounting pressure on the sector to provide good quality rental properties," said Ian Potter, operations manager at ARLA.
In addition, the Royal Institution of Chartered Surveyors' (RICS') latest lettings research suggested that rents will rise in early 2010 as the number of rental properties coming onto the market fell for the first time since 2008 during the third quarter of the 2009.
RICS reported that 22 per cent more surveyors expected rents to rise rather than fall over the next three months.
"It seems the current upward trend in the housing market is having a more significant effect on the lettings market, with many of the accidental landlords returning to the sales market to take advantage of the recent price increases," said Jeremy Lead, a spokesperson for the organisation.
"As a result the recent oversupply is reversing, with new instructions at the lowest levels we have seen. This of course is impacting on prices and tenants no longer have as strong a bargaining power as they did." he concluded.
