Why it's a bad time to buy a house

Property prices predicted to fall

House prices are set to dip across the UK next year as the market pauses for breath following the sharp growth in values seen in 2014, according to new predictions by analysts.

The Centre for Economics and Business Research (Cebr) said the UK property market has reached a turning point after its strong recent recovery.

This will be compounded by some prospective buyers being "startled" by the rise in interest rates which is widely expected by forecasters in 2015 as the Bank of England base rate moves off its historic 0.5% low, it predicts.

Cebr forecasts that prices will grow by around 7.8% across the whole of 2014, which is just over double the rate of the 3.5% increase seen across 2013 and would be the strongest annual growth seen since 2007.

But next year, prices are likely to see a 0.8% year-on-year fall as the market adjusts itself, it predicts.

Growth is likely to pick up once more in 2016, with prices increasing by around 2.6% year-on-year, according to Cebr's forecasts. Values are then predicted to take upward steps of around 3% each year,
with a 3.4% annual increase forecast for 2020.

Several housing market reports released in recent weeks have pointed to the pace of house price growth slowing down after property values hit some record highs over the summer.

See the latest mortgage rates and get expert advice

Estate agents are reporting receiving fewer new enquiries from potential buyers, which is leading the upward pressure on house prices to ease and means some properties are taking slightly longer to sell than they might have done earlier this year.

The London market, which has been the driver of house price growth, is now seeing a rapid cool down, according to some recent studies.

The Cebr report, which used Office for National Statistics (ONS) data as a base for some of its findings, said: "Affordability has become such an issue in the more expensive regions of the UK that buyers are starting to baulk at high prices."

It said that although any rise in the base rate, which will lead to mortgage holders' costs becoming more expensive, is likely to be very gradual, "prospective buyers are likely to be startled by the first such increase - leading many to hold off from making purchases. This too will lead to lower prices."

Are You Ready to Be a Homeowner?

Scott Corfe, head of macroeconomics at Cebr, said: "Tougher mortgage eligibility criteria, high deposit requirements and concerns about future rate rises are starting to take the steam out of the UK housing market."

He also moved to offer some reassurance, saying: "Price falls next year will be modest and we shouldn't be too worried about this - we are not anticipating a crash.

"The market is adjusting after getting ahead of itself at the start of 2014."

Last week, the Bank of England said that it plans to leave the Government's flagship Help to Buy mortgage support scheme untouched for now, after finding that the scheme does not pose material risks to financial stability under current market conditions.

The Bank said that in general, housing market activity appears to have eased slightly and projections point to the rate of increase in property values moderating.

Compare the latest mortgage rates

In June, the Bank announced stronger curbs on mortgage lending, including saying that no more than 15% of lenders' new mortgages should amount to more than 4.5 times the income of borrowers.

Toughened industry-wide mortgage lending rules also came into force in April, which force lenders to ask mortgage applicants for more details about their spending habits, in order to make sure that they can truly afford their repayments.

Lenders have issued several warnings recently to borrowers to start planning now for the prospect of interest rates rising.

The people who affect house prices
See Gallery
Why it's a bad time to buy a house

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.


Read Full Story