Housing experts predict 'new boom/bust period' for UK property market

House prices will rise steadily in line with inflation over the next few years, according to leading property professionals who attended London's Annual Great Housing Market Debate. 

The experts at the Land Data debate, hosted by the Wriglesworth Consultancy, said house prices will flatline this year. However, concerns were expressed about a further boom/bust period beyond this if demand continues to outstrip supply and mortgage availability improves.

The panellists were Ian Baker, Managing Director, Galliford Try Homes; Martin Gahbauer, Chief Economist, Nationwide Building Society; John Heron, Managing Director, Paragon Mortgages; David Newnes, Managing Director, Your Move and the BBC Chief Economics Correspondent Hugh Pym.

David Newnes said: “This year prices will be flat but they will gently rise through to 2012 when we might see some different dynamics if there’s an easing of mortgage funding.

"Transactions are significantly up 30% year on year but supply coming to the market is outstripping that. In the absence of other external shocks we could see house prices getting back to 2007 prices in real terms within three or four years.”

John Heron added: “The key feature behind the strength of house price rises recently has been the shortage of supply and the low build rates and when compared to demand, this is likely to carry on.

"We will continue to see owner occupiers sitting on their hands benefiting from low interest rates and pocketing the extra cash.”

The panel did not see lending returning to “normal conditions” in the short term and furthermore could see no reason why lenders would be compelled to increase loan to values while banks are required to hold more capital and regulation means higher mortgages costs.

Martin Gahbauer said: “The short-term reality is that the funds are simply not there at the moment; essentially the UK banking industry and mortgage sector faces a funding gap of several hundred billion pounds.

"The industry’s big challenge over the next couple of years is to refinance the existing stock of lending. The funds that are available for new lending are barely enough to cover the demands for lower LTV lending at around 75-90%.

"So the incentive for lenders to move further up the risk curve to 90% is limited simply by the amount of funds available, particularly in light of the uncertainty about future regulatory and capital requirements.”

Ian Baker added: “We’ve had a look at the rate of approvals of mortgages at 80-95% loan to values recently and from a basket of 50 applications nine were approved, compared to a more steady market of 2005-07 when 41 of those would have been approved.

"So there’s a massive difference for people who want to buy a house, who see the benefits of buying new build property, and are not able to get the finance.”

Rental market set to grow

The consensus of the panel was that the rental market was set to grow from around 12% at present to 20% in 10 years’ time.

A vibrant rental sector was welcomed as good for the economy and the only alternative for many would be first-time buyers for whom finance was still largely unavailable. Net immigration to the UK, more demand for single occupier property and need for a more flexible workforce were also seen as key factors.

David Newnes said that we should consider tax breaks for landlords in the UK like those in Europe instead of actively taxing people against buy-to-let.

Speaking from the floor, David Salusbury, Chairman of the National Landlords Association added: “If we are going to create the vibrant private rental sector that is generally accepted as desirable, there needs to be a strategic approach to regulation and people should be incentivised to enter the sector.”

HIPs should be adapted not scrapped

The debate finished on the controversial topic of Home Information Packs (HIPs), with an overwhelmingly vote to “adapt not scrap” the current pack. Just four people in the audience of more than 100 voted to scrap HIPs despite the pledge by both the Conservative and Liberal Democrats to do so if they take power in May.

David Newnes said HIPs had helped stem transaction fall-throughs this year and last, with the rate of exchanges significantly improving from around 33% each month to around 42%.