House prices set for prolonged downturn

Published 10th Nov 2010

Estate agents Savills predicts a 10-year downturn in house prices with some homes losing up to 15% of their value when inflation is factored in


Millions of homes may slump in value for years to come, according to one of the country's most respected estate agents.

Savills has warned that homes across the UK will drop in value by an average of 7.3% from mid-2010 to the end of 2011. Larger homes in popular locations will slowly recover after that, but the agency said some categories of property – typically older flats and terraced houses in less popular areas of the country and in "secondary" parts of big cities – may drop much further in value.

In 2007 Savills' researchers predicted the downturn and forecast a slump of 20% in prices. It has now described 2010 as a "year of structural change" in the housing market and its research director, Yolande Barnes, has warned of a growing north-south divide and "a polarisation between equity haves and have-nots".

She said average prices of all homes across the UK will only return to 2007 levels in 2016, making this a 10-year downturn. Even then, most will have still lost as much as 15% of their effective value when inflation is taken into account.

The firm said it now believes there won't be a return to the heady days of large loan-to-value mortgages, so the number of people moving house annually may not rise much beyond the current 900,000 a year, which is little more than half the 2006 level.

However, the headline figures mask substantial regional variations. While prices will rise 26% from their current level in the south-east of England by 2015, and by 18% in the south-west in the same period, the average increases in the north of England in the next five years will only be between 1% and 3%, keeping them well below their 2007 peak even before the effects of inflation.

Flats and houses in less popular areas, especially in the north of England, may drop in value substantially more, Savills warned. "Owners here may be better off considering how much the homes may make on the rental market rather than banking on them increasing in capital value," Barnes said.

Savills even thinks some so-called "doomster" analysts who have calculated UK homes to be over-valued by as much as 30% could turn out to be accurate, at least in regard to some types of property in certain locations.

Another Savills spokesman, Lucian Cook, said: "The divergence between housing markets in different regions is much more pronounced than we expected. That may get worse because of the austerity measures introduced by the coalition and because of rising unemployment."

Minority gains

But there will be big gains for a minority of homeowners. Savills said the "top tier" of homes – high quality apartments in luxury developments, and hard-to-find period houses in areas with sought-after schools, primarily in the home counties – will rise in value far more than other property types.

Central London, where foreign buyers taking advantage of favourable exchange rates account for up to half of the buyers in some exclusive areas, will also see huge rises of as much as 30% or more in the next five years.

Ironically, another big gainer may be buy-to-let landlords, who are blamed in some circles for contributing to the difficulties encountered by younger purchasers wanting small, low-cost homes. Savills expects the private rented sector, which now accounts for 12% of all the UK's housing stock, to rise to 20% or more in the next five years as fewer younger people secure mortgages. "Rents are likely to increase significantly as demand continues to outstrip supply," Cook said.

In recent years Savills has been the most pessimistic of forecasters, and the most accurate. It has also warned that other indices and ratios measuring the housing market may be flawed, as they are based on transactions mostly made up of the 50% of homeowners who have no outstanding mortgage at all, or have loans of less than half the value of their property.

Savills said this does not represent those less well-off existing owners or potential buyers who are unable to get mortgages, or are unwilling to move because of nervousness over imminent spending cuts and job losses.

This latest prediction has led other estate agents and consultancies to admit that they, too, fear more price falls are on the way.

Hometrack, which issues a price index based on data from 3,000 estate agents, says further price falls are "inevitable". CB Richard Ellis, an agency working with developers building new homes, also says prices will drop in 2011. "The recent decline in prices is looking more like a trend than a blip," warned CBRE research head Jennet Siebrits, who also said it will become harder still for buyers to get mortgages if the Financial Services Authority places further restrictions on lending.

Source: ' 'Guardian' '

View All Latest News