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Flat land

Nicola York finds that property prices have hit a plateau and we may be about to see serious falls in some areas of the country

Flat as a pancake is the sentiment echoed by mortgage brokers and lenders when asked for their forecasts on the housing market in the final quarter of this year.

London & Country head of communications David Hollingworth says there is little to suggest that there is going to be a recovery in the market and says house prices and interest rates are likely to remain flat.

“There have been some slight signs that people are a little bit more confident about the market but I do not think that is going to translate into heating it up enough to start shifting it too much upward,” he says.

There is still a market for buy to let, he believes, which is partly a result of lenders adjusting their rental calculations to make life easier for the borrower. He is also confident there will remain a lot of remortgage business in this sector of the market.

But Portman Building Society group development director Matthew Wyles believes the remortgage market is going to get steadily smaller in the final quarter due to more aggressive retention pricing by lenders. He says: “There will probably be less churn in 2006 and lenders will be more focused on net growth rather than on gross lending.”

But Wyles thinks BTL will be stronger because first-time buyers are holding off. He says: “Affordability is still an issue and this will help to underpin the BTL market. I think there are still, in some areas of the UK, buying opportunities for prospective landlords and we think the fundamentals of the BTL market are relatively sound.”

He considers that Government intervention through plans such as home-equity schemes is unlikely to have a marked impact on the market. “What is more serious is that we have high oil prices, falling consumer confidence and rising taxation. None of that makes the prospects of a housing market look great. We are not forecasting a crash but I think anybody who is expecting the market to bounce back in the last quarter of 2005 to the levels of activity we saw last year and before is smoking opium,” he says.

However, Capital Economics property economist Ed Stansfield says he would not be surprised to see a bit of a recovery in the market over the next two to three months – partly for seasonal reasons and partly because expectations are high for a further interest rate cut.

He says: “I think that any improvement in activity you get will probably be driven by people who are already on the housing ladder and trading up. I still think the biggest obstacle facing the first-time buyer, aside from confidence, is the problem of raising a big enough deposit and I think all the urgency for them has gone at the moment.”

There are high expectations for a 25-basis- point cut in base rate before Christmas – a view shared by Mortgage Portfolio Services mortgage planner Simon Chalk who expects there to be at least two quarter-point cuts by January.

He thinks there could be “some serious depreciation” in property value in some areas. “I am coming across developers and people selling who are being more realistic on prices and they are taking less so I think we will see some negative prices. Volumes will stay pretty low in terms of turnover,” he says.

The other reason for a dip in house prices, according to Chalk, is that people are “getting giddy” about A-Day which he believes is a false dawn. “Most people will not qualify for transferring properties into Sipps so it is the press who are creating the excitement which gives an artificial feel to the market. There will probably end up being too much property around and not enough purchases.”

But he says the financial markets are cyclical and contra-cyclical in terms of asset classes – when one is up the other is down. “When the upturn will be, I could not guess but it will come and then equities will have their dog day and property will pick up again. That is how it works,” he says.

Chadborn Baker & Kearle IFA Peter Wright hopes the market will remain steady, because “when you have an upswing you have a downswing?” He thinks peaks and troughs may put people off buying property as borrowers wait for prices to come down before buying.

The recent rate drop did stir up the market but Wright thinks it was too late. He says: “It would be nice to see rates stirred up a bit and then drop. The thing that annoys me is that lenders are now edging forward with bigger booking fees just to try and recoup some of the drop in rates. The Halifax’s 4.29 per cent rate is good at the moment but the booking fee is almost 600, which is an awful lot of money. Hopefully, with rates likely to drop further, these fees will not sneak in on the back of it.”

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