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Bonus ball to bring boost

The overriding fear this time last year was that Gordon Brown’s spectacular U-turn on residential property into a Sipp would lead – not to a housing market crash, exactly – but certainly a slowdown in house price growth.

Those fears turned out to be unfounded, with 2006 proving to be yet another robust year. What of this year – is 2007 the year when the housing market finally crashlands? Not likely as the portents are so good. City bonuses are set to be even better and much of this cash will be invested in property. Savills predicts that a whopping £5.5bn of this cash will make its way into the top end of the housing market in 2007.

As a result, it is predicting growth of 15 per cent in the prime central London and mainstream South-east markets and 12 per cent in mainstream London. Fairly impressive by anyone’s standards.

But City bonuses are just one factor set to fuel house price growth, which is why Savills is predicting growth of 7 per cent across the UK. Away from the prime market, much depends on what happens with interest rates. The smart money seems to be on another rate rise in the spring, possibly as early as February. Further increases will depend on how the economy performs in the first few months of the year.

We expect rates to peak at 5.25 per cent but even if they rise further it may not necessarily put a stop to climbing house prices. There is still room for further value growth, albeit at a reduced rate, as limited supply in many parts will push up house prices. Much also depends on how much cash people have to spend on the mortgage. As the cost of food and clothing falls, there may be more cash available to allocate to the mortgage.

All this is of small consolation to first-time buyers who will continue to struggle without help from parents and lenders. But moves will continue to be made to make life easier for them – with lenders increasing income multiples when borrowers can afford it, offering higher loan to value and working with the Government to offer equity loans through the extended Open Market HomeBuy scheme. The latter still needs work – better rates, shorter periods where early repayment charges apply and more flexibility – but it establishes an important precedent whereby public and private money combine to make a serious impact on the problems faced by those trying to buy their first property.

As far as broking is concerned, there will be challenges thrown up by a contracting mortgage market. Lenders are working to retain customers with competitive rates on lifetime trackers and longer-term mortgages. With ramped-up arrangement fees pushing up the cost of remortgaging, more borrowers may be tempted to stay put rather then switch lender. Retention fees will come into the spotlight again but brokers must continue examining the whole market to recommend the right deal to clients as we have a responsibility to provide best advice. Whatever the outcome, intermediaries will be working more closely with lenders, which is no bad thing.

As far as SPF is concerned, we have just opened an office in Cardiff – our first in Wales. It means we now operate in three countries, as well as in Guernsey. We are opening in Windsor in the New Year and hope to turn our attention to mainland Europe at some stage. There are still plenty of opportunities out there. It is all about adapting to an ever-changing market to ensure 2007 yields the positive results we expect it to.

Mark Harris is managing director of Savills Private Finance

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A happy, healthy and prosperous New Year to all the wonderful people I have met working within financial services. Do you know what 2007 will bring? How about these not insignificant things as a starter?

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