House prices ‘will not plunge’ in 2011

6th December 2010

Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA), says that while the housing market faces a tough year, he is confident that no widespread drop in house prices will occur. 

He says: "The housing market remains in a state of fragile recovery as the year ends. Frankly, however, this recovery is threatened by the stubborn refusal of major lenders to loosen their self-serving restrictions on mortgage lending."

As far as house price falls go, 2010 has proved to be a difficult year for anyone with a property to sell. Hometrack, the property and mortgage intelligence group has recorded five successive months of house price falls, with November's 0.8% a shade up on October's 0.9% drop – the steepest fall since January 2009.

But the better news is that it predicts house prices will end 2011 just 2% down, simply because of a tightening in supply.

As the NAEA's Bolton King explains: "The danger is that a backlog of pent-up demand for property emerges. That means the market will suffer from lack of demand in the short term and potentially be distorted by a rush of demand when these people can finally get onto the ladder." 

It's ultimately good news for homeowners. And as Bolton King adds: "We do not believe that there will a widespread fall in house prices over the next 12 months. There will be ups and downs, but I'm confident that we won't see a plunge. 

"What we will see is the emergence of ‘postcode power' – as demand for property in some areas fuels a healthy market while other, less desirable areas, are in danger of being left behind."

Interest rates are key

But he stresses that the outlook is still dicey for existing homeowners. With an interest rate rise on the cards for next year, anyone with a mortgage on the standard variable rate, or whose fixed rate term is coming to an end, should brace themselves for a significant rise.

He says the monthly wait for the Monetary Policy Committee's decision on interest rates will be a nervous time for both existing and potential borrowers. 

As Bolton King says: "An historically low rate of interest has benefited those people who already have a mortgage, but it is likely that over the next 12 months it will rise.

"That will place more pressure on existing borrowers but also remove mortgages from the reach of even those house buyers with large deposits."

SEE ALSO: Realistic homeowners debunk the ‘nest egg' myth

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