Housing market faces 2010 challenges
House prices are now 2.7% higher than this time last year following a 0.5% increase in values during November, but experts warn that challenges lie ahead.
The latest house price figures from Nationwide show the average property increased in price from £162,038 in October to £162,764 a month later - a similar level to where average values were in early 2006.
However, the three-month rate of house price inflation – which is generally considered to be the most accurate reflection of housing market activity – dropped to 2.8% last month, from 3.5% in October and 3.8% in September. The building society says this shows that prices are now rising at a more moderate pace than in the spring and summer months.
Last month, Nationwide warned the rising values seen earlier in the year were not sustainable in the current climate. With unemployment still rising, and the UK still officially in the longest and deepest recession since the Second World War, the outlook for residential property remains uncertain.
However, Martin Gahbauer, chief economist at Nationwide, says that recent developments in the labour market have been “encouraging”.
Unemployment was expected to breach the three million mark this year, but the latest data shows there were 2.461 million out of the work at the end of September.
“While unemployment has indeed increased noticeably, the rise has not been as rapid and pronounced as previously feared,” says Gahbauer. “It now looks unlikely that the jobless total will reach three million before the year is up.”
Many employers have reduced working hours and pay, rather than making redundancies. However, if the UK’s economic recovery is slow, then these firms might be forced to make redundancies in order to improve their productivity and profitability, says Gahbauer.
Such a move could unhinge the housing market, leading to a reversal of the recovery seen throughout much of 2009.
Catherine Penman, head of research at property consultancy Carter Jonas, points out that more people lose their jobs exiting a recession than going into one – making the next six months crucial.
Low interest rates have also helped sustain house prices, with fewer borrowers falling into arrears than might be expected during a recession.
Stephen Thornton, spokesman for the Royal Institution of Chartered Surveyors, says the low levels of property being put up for sale has also been a key driver of the rebound in prices.
However, he warns there are now signs that this is changing, with estate agents reporting an increase in instructions.
“The modest increase in supply could help to explain why there has been some slackening in the pace of price gains over the past few months,” he adds. “Nevertheless, the imbalance between buyer interest and the available stock of property is still sufficiently large to point to further price increases into the new year.”
One potential challenge to any full house price recovery will come in January, when the stamp duty holiday on properties worth under £175,000 is removed. From 1 January, only buyers of homes priced at under £125,000 will be able to avoid having to pay this tax.
The pending election could also cause problems. Penman says: “Despite improving economic data and sentiment, prices are likely to remain stable in 2010, especially prior to the general election, when caution will remain the watchword.”
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.