In sharp contrast to 2014 – when prices jumped by 8.8% nationally – the Centre for Economics and Business Research said the threat of higher interest rates, the May general election, greater supply and fewer foreign buyers will send the market into reverse in 2015.
The CEBR is predicting prices will fall 0.6% in the year ahead, with London seeing the first marked falls for more than five years. It said prices in the capital will dip by 3.3%, though that comes after gains of 16.8% in 2014.
“Leading indicators such as fewer new buyer inquiries and properties taking longer to sell already point to falling prices,” said the CEBR. “Even after May, when the elements of political and taxation uncertainty are less of a factor, the CEBR does not expect a strong post-election bounce back.”
The latest credit conditions survey by the Bank of England also found much reduced demand for mortgages in the fourth quarter of 2014. Mortgage approvals for house purchase retreated to 59,029 in November from 59,511 in October, and are 22.9% below the 74-month high of 76,611 seen in January 2014.
Mortgage brokers said the Bank’s figures confirmed their experience of a marked slowdown in the housing market towards the end of last year. Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Things slowed to such an extent that demand was at its lowest since the third quarter of 2008, while there was also a decline in buy-to-let lending.”
Potential buyers are finding that lenders are much less willing to offer 90% loans or high loan-to-income multiples.
But the CEBR’s forecast of outright falls in property prices this year is shared by few other economists. Halifax said it expects prices to rise by 3% to 5% in 2015, once the pre-election lull is out of the way. The surveyor’s body, Royal Institution of Chartered Surveyors (Rics), is also predicting 3% growth across Britain, but with prices remaining flat in London.
Howard Archer, economist at IHS Global Insight, said the rapid cooling in the property market over the past couple of months may soon be over. “The weakening of buyer interest in houses may well be close to bottoming out and we do see it picking up to a limited extent in 2015 from current levels.
“In addition to the stamp duty reform, some support for housing market activity should come from a number of factors: elevated consumer confidence, high and rising employment, and still low mortgage interest rates, especially as the Bank of England looks unlikely to raise interest rates before late 2015. In addition, earnings growth finally appears to be firming and we expect it to gradually improve over the coming months.
“Given this backdrop, we expect house prices to rise by around 5% in 2015.”
Halifax added that the stamp duty reforms could also help more first-time buyers access the property market in 2015. It said that first-time buyers enjoyed a bumper year in 2014, with their numbers growing by 22% to 326,500 in 2014, which came on top of a 23% increase the previous year.
The average cost of a home bought by a first-time buyer rose 9% to £171,870, compared with a year ago. However, the average cost of a deposit for this type of buyer fell 7% over the same period to £29,218.
Craig McKinlay, mortgages director at Halifax, said: “Improving economic conditions and rising employment levels have boosted confidence among those thinking about getting on to the housing ladder for the first time, contributing to the significant increase in the number of first-time buyers in the past two years.”
Larne in Northern Ireland was the most affordable local authority area in the UK, with an average property price of £80,793 for first-time buyers. The worst was Camden in London, where the average first-time buyer’s property price of £614,315 was 11.4 times the gross average annual earnings in the area.
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