House Prices

The economist views are split on what house prices will do in the UK this year. Here is my opinion.

There are lots of different indicators that can hint at what house prices will do. The Bank of England base rate for example. It’s a fairly simple correlation. Rates up, results in more expensive mortgage payments and this tends to have a reducing effect on house prices (or more accurately a negative impact on the rate of increase).

I propose this actually means little. House prices are determined by the buyer. It’s consumer driven, pure and simple. I propose that it’s even more specialist than that. I believe it is driven by the first time buyer. He’s an interesting chap, driven by market forces and in a bit of a flap because he considers:
- the need to get on the ladder, owning property is still king in the UK
- the shortage of housing, people stay single longer, not enough new houses are being built
- interest rates are low and have been for some time (he probably doesn’t remember the high rates of the ‘80s)
- house prices are still going up, needs to buy now before he’s priced out
- lenders are offering even more, and he feels he can remortgage to get a better deal later

The real deciding factor these days is how much the bank will lend to him. People buy now, pay later (financially, emotionally and with their health). Increasingly people are also buying together or in new part ownership deals.

Hence I think we’ll continue to see another upward trend. My prediction – 20% increase by December 2007.

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