Experts warn of stagnant house prices in 2008

8 January 2008

Home owners have been warned to still expect a subdued housing market in 2008 despite house prices rising by 1.3% in December after three months of falls.

Figures from Halifax, the UK’s largest lender, show a monthly house price increase of 1.3% in December and a yearly increase of 5.2%. The rise follows house price falls in November, October and September.

Last month's rise means the average price of a home in the UK increased by £11,759 over the year to £197,039.

But Halifax says that the rate of house price growth in 2007 was at its slowest since 2005, with price inflation below the long-term average of 8%.

And economists say that despite the December pick-up in house prices, a general housing market slowdown is still on the cards in 2008.

Martin Ellis, chief economist of Halifax, says: "House prices increased by 1.3% in December, reversing some of the declines recorded in the preceding three months. This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market.”

Ellis predicts house prices will remain flat in 2008, a loss in real terms for those planning to sell in the next few years. But he adds: “A slower housing market must be taken in context. House prices have risen by 182% over the past 10 years from an average price of £70,000 at the end of 1997 to £197,000 today.”

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, says: "It is premature to conclude that this is likely to mark a turning point in sentiment. Our suspicion is that the market environment is likely to remain challenging for at the least the first half of this year and that activity levels will remain subdued.”

One reason for the slowing housing market is the fact that for many borrowers it is now harder to get a mortgage.

Data from UK lenders shows that in November the number of new mortgages and remortgages fell by a total of £3.5 billion. The Council of Mortgage Lenders, which collected the data, says that loans to borrowers were more conservative that in previous months, with home movers tending to borrow 3.02 times their income. This is down from a high of 3.04 times income in the summer.

Experts say that the difficultly in getting a mortgage is one factor for the forecast rise in insolvencies in 2008.

However, changes to the banking code in March may make things easier for borrowers who are struggling to repay their mortgages.

Currently, borrowers are responsible for contacting their bank if they are struggling to meet their mortgage repayments and are worried about falling into arrears.

But from March lenders will have to warn their customers if they appear to be suffering from financial difficulties and will be required to offer them help managing their debt.

The new rules are designed to make banks and borrowers work together to stop the rise in repossessions.


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