November 6, 2009 3:10 am

House price rebound seen to end next year

The housing recovery will come to an end this year because of the lingering effects of the weak economy, according to forecasts by a leading estate agent.

Values are expected to weaken in both the mainstream and prime residential markets in 2010, according to forecasts for the year ahead by Savills.

However, the sectors are expected to be affected to differing degrees as the return of bonuses next year begins to help the more expensive parts of the market.

The main UK market is forecast to fall by 6.6 per cent in 2010, according to Savills, before returning to growth of 2.7 per cent in 2011, with stronger gains of 5.5 per cent and 8 per cent in 2012 and 2013.

Savills expects the backlog of demand from equity-rich buyers to erode into 2010 as supply increases and positive sentiment wanes.

The falls next year are expected to be cushioned by greater affordability in an environment of low interest rates, however.

Lucian Cook, a director at Savills, said: “We’ve seen the pent-up cash-rich demand chasing low levels of stock, but that is going to weaken and then buyers will have to operate within the constraints of the mortgage market.”

A gradual return to house price growth is expected as economic growth is restored and mortgages become more easily available.

Prime house prices in central London are continuing to rise strongly, up by 2.1 per cent in October according to Knight Frank, the estate agent. Some areas have seen price growth of 13 per cent since March. This has been driven by the return of UK buyers, in particular those employed in the City, said Liam Bailey, Knight Frank’s head of research.

However, Savills says prime markets will record a 1 per cent fall next year but then recover more strongly as they are less reliant on mortgage finance and will be supported by the return of bonus equity.

Savills expects bonus buyers to start returning next spring when bankers receive their payments. The average value of a property acquired by a cash buyer from the financial and business services sector has been 51 per cent higher than the average property in the prime market.

Savills predicts that a third of bonus pay-outs will find their way into the property market but that changes to practice will mean that a repeat of the bonus-fuelled price growth of 2006 and 2007 is unlikely.

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