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Julian Gibbs

I have been asked recently by several IFAs what is going to happen to house prices and whether they should advise their clients to buy now. Much the most sensible analysis has been produced by Cluttons in association with Oxford Economic Forecasting. Its conclusion is two-fold.

First, it believes that house prices in Central London are slightly but not significantly overvalued. It suggests there is an 80-85 per cent chance of prices falling at some stage this year by more than they have already and that there is a 40-45 per cent chance that these values will dip below 2000 levels at some stage over the next year or so. However, it sees house prices in Central London growing positively again by the end of 2004.

My advice for those intending to buy in London is to make offers 20-30 per cent off the asking price and only buy if that can be achieved.

Cluttons&#39 research paper concludes that UK property outside London is not overvalued because current levels are fully justified by low unemployment, strong income growth and low interest levels. It thinks there is just a 5-10 per cent chance that overall UK house prices will fall this year but there is a greater chance of 40-45 per cent that UK property prices will fall a little in 2004.

In absolute terms, it thinks that UK house prices will not fall below 2000 or 2001 levels, whatever the economic scenario, so a large-scale negative-equity situation as in the 1990s is pretty remote.

In the case of a long war in Iraq, it expects Central London house prices to be hit hard and to fall by about 16 per cent by the end of this year.

On balance, I think it is still worth buying residential property outside London but it is sensible not to pay more than 90 per cent of the asking price.


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