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House prices surge in the face of gloomy forecasts
Jonathan Prynn, Consumer Business Editor6 Oct 2009
House prices look certain to defy all expert opinion by ending the year up after another surge.
The average value of a home in Britain rose 1.6 per cent to £163,533 last month, the third consecutive monthly rise, according to the Halifax.
That means prices are now 1.7 per cent above their 1 January level and have bounced almost six per cent since the trough in April. Commentators now expect prices to end the year between five and 10 per cent higher than they started, although they will still be well below the dizzy peaks seen in 2007.
Today's Halifax survey follows similar findings from fellow mortgage lender Nationwide last week that prices are already four per cent up on last year. But the strength of the revival also triggered warnings that it cannot last and prices will fall again next year.
The extraordinary recovery since the spring confounds almost every prediction made earlier in the year by economists and property experts. In a Reuters poll of 36 City analysts in March — around the time the market was touching bottom — the average prediction was a fall of 14 per cent this year, with 23 analysts saying it would be at least 12 months before the market stabilised.
The Bank of England's decision to cut interest rates to an all-time low of 0.5 per cent, combined with a severe shortage of homes on the market, has pushed prices back up again since then.
In some wealthier parts of London homes are fetching all-time highs as cash-rich buyers seek better returns for their money than currently available by leaving it in the bank.
Ray Boulger, of mortgage brokers John Charcol, said the first-time buyer market was being stimulated by the Chancellor's decision to lift the threshold on one per cent stamp duty from £125,000 to £175,000. It is due to return to £125,000 at the end of the year. He said: “It may not sound much but one per cent can be the straw that breaks the camel's back when mortgages are hard to get.”
More lenders said they were relaxing terms on mortgage deals. Woolwich cut the rate on its lifetime tracker deals for borrowers with deposits of 30 per cent or more by 0.45 per cent to 2.29 per cent over the Bank of England's rate. Northern Rock cut its rates and reduced its arrangement fee for house purchase loans from £995 to £595.
But there were warnings the mini-bubble is only creating the conditions for the next slump. Seema Shah, property economist at analysts Capital Economics said: “With unemployment set to rise further and the market still overvalued, the correction is far from over.”
Keshav Thukaram, managing director of buy-to-let site Smartlandlord.co.uk, said: “This is just another indication prices are bottoming out — not that they are going to start shooting back up again in the medium to long term. These rises are only being driven by a shortage of supply, not enormous demand.”
There was also further evidence the economic recovery may have already stalled. Industrial production slumped 2.5 per cent in August, according to official figures, far worse than forecast. Sterling fell sharply against the dollar following the dismal news.
Reader views (2)
Try starting with a salaries "surge" to afford these overrated suburban "castles".
- Ted, London, 08/10/2009 07:55
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One word- SPECULATION
- Peter, Moscow RF, 07/10/2009 06:57
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