What will happen to UK house prices in 2012?

By Kate Saines

Without the aid of a top-of-the range, fully-functioning crystal ball it’s quite impossible to predict exactly what will happen to house prices in 2012.

Yet, for anyone who is in the process of buying or selling a property or, indeed, those of us who are considering moving on and selling up in the next 12 months being privy to some insider information on the state of the housing market in 2012 is the equivalent of gold dust.

So, bereft as we are of said crystal ball we have to rely on expert predictions and past experience to give us any hints and tips on whether 2012 is the year the housing market will finally get going again.

And the overall consensus seems to be that while the market will not suffer a huge slump, any recovery looks set to be laboured.

According to the Royal Institution of Chartered Surveyors’ (Rics) Housing Market Forecast, house prices in the UK will fall by three per cent over the next year.

The prediction from Rics is that the lack of supply seen in in 2011 will continue but this will stabilise prices preventing any large declines.

Of course this is only a general overview. A variety of factors such as the area you are choosing to buy or sell in and the type of property you want to buy, not to mention your current position (first or second time buyer) will have an impact on how successful your sale or purchase will be this year. Regional variations play a huge part in deciding the value of a house and there are even vital trends and variations in any one town with some types of property more in demand than others.

Location, Location

The area you are buying or selling is crucial when it comes to predicting house prices. Last year the area recording the biggest rises was Woking in Surrey, according to the Halifax Town House Price Survey.

The average selling price in this area was 16 per cent higher than in the previous year which meant prices soared from £257,590 in 2010 to £299,654 in 2011.

It’s no coincidence that this place is a large commuter town with quick and easy connections to central London by rail.

Falkirk recorded the second biggest rises in house prices, notching up a 12 per cent gain. And, like Woking, it’s within easy commuting distance of Edinburgh and Glasgow, Scotland’s major commercial centres.

Southern England fared well generally in the survey, and the majority of the worst performers’ prices were outside this region with Kettering, Northampton and Dunfermline seeing the largest falls in average selling prices.

Looking at this data it would be fair to assume people selling properties in the south of England or a commuter town will have no problems either finding a buyer or getting a good price in 2012.

Martin Ellis, Halifax’s housing economist, agrees the regional differences are likely to continue in 2012. He explained it was difficult to predict the course of house prices over the next 12 months.

But, he added: “Nonetheless, we expect some variation in house price movements across the country. Prices are likely to be strongest in London and the South East as these regions perform better economically.

“House prices outside southern England are expected to be constrained by these areas’ generally weaker performance and their greater dependence on public sector employment.”

Average prices

As we embark on a New Year, house prices, according to Nationwide, are at an average of £163,822 in the UK.

The building society’s house price data suggests prices rose only one per cent over the year which could “hardly be described as a strong performance” according to Robert Gardner, Nationwide’s chief economist.

Yet he thought this performance showed resilience amid the harsh economic environment.

With 2012 predicted to be a year of further turbulence throughout the economy, surely the housing market is facing similar fortunes to last year?

Peter Bolton-King, chief executive of the National Association of Estate Agents (NAEA) thinks we’ll see a “gradual recovery” for the UK property market. “I don’t’ believe we will see a significant fall in house prices over the next 12 months as some have feared,” he said.

“But equally, it is unlikely we will see any great upturn to help the market back to full capacity. It is likely that property transactions will remain at as similar level to that in 2011.”
Mr Bolton-King thinks confidence will have a major influence on the way the housing market fares in 2012.

The likelihood of the Bank of England keeping base rate at 0.5 per cent for the entire year should help keep house prices stable.

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First-time buyers

But, of course, there are other factors which affect house prices. The amount of finance available, particularly to first time buyers will have an impact.

And then there’s the end of the stamp duty holiday in March 2012. The break meant first-time buyers purchasing properties of less than £250,000 were exempt from the one per cent tax.

Mr Bolton-King said this would make it even more difficult for first-time buyers to access the market.

Last year was a tough one for first-time buyers. While the decline in house prices made affordability less of an issue, the fact lenders were reluctant to provide loans for people with small deposits meant many first-timers were unable to purchase their own home.

And while 2012 looks set to offer much of the same, there are already products being marketed this month aimed at giving first-time buyers a helping hand on to the property ladder.

HSBC just announced, as part of its January sale, it was offering a fee-free lifetime tracker for buyers with a loan-to-value (LTV) of 90 per cent. The mortgage has an interest rate of 4.09 per cent plus base rate.

Peter Dockar, head of mortgages at HSBC, said the bank was “committed to supporting” first-time buyers.

Meanwhile Halifax welcomed in the New Year by pledging its support to first-time buyers with a fee-free two-year fixed-rate deal charging 5.99 per cent for LTVs of between 85 per cent and 90 per cent.

As part of the package Halifax is also offering £500 cashback to help buyers cover the costs of buying their home.

But is this enough help for first-time buyers? Halifax’s figures suggest the stamp duty holiday allowed nearly four in ten first-time buyers to be exempt from the tax last year.

However, this year 38 per cent more will be required to pay stamp duty – a large proportion of potential buyers. A lot more will therefore have to be done than waiving fees on mortgages to help many first-time buyers make up for this additional cost.

Mortgages

Meanwhile, for buyers in general, the New Year seems to be heralding the arrival of some tempting mortgage offers.

Adrian Coles, director general of the Building Societies Association, said: “The New Year has seen some excellent mortgage products go on sale from mutual with a return to some offering high LTV mortgages.

“These are encouraging trends against rather discouraging developments in the wider economy.”

But even if mortgages become easier to come by, the issue of supply and demand could hinder even the most financially strong among us.

Economic influences

According to Rics the weak economy forecast for 2012 along with the prospect of more unemployment will see demand for properties remain flat.

And even government ‘assistance’ in the form of the mortgage indemnity scheme, aimed at helping 100,000 buyers on to the property ladder, will be unlikely to an impact because it is restricted to new build properties, Rics said.

Simon Rubinsohn, chief economist for Rics, summed up by saying: “The general economic climate is likely to be the biggest influence on the residential property market [in 2012].
“Prices could edge a little lower as unemployment continues to rise. However the lack of supply in the market is likely to prevent any significant house price declines.

“Transactions levels should see a slight increase, although mortgage lending is likely to remain subdued which will limit the scope for improvement.

“As a result of this, the lettings market will remain firm which means that rents are likely to increase further, albeit at a slower pace than in 2011.”

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