What do first-time buyers and mortgage payers have in common? They both have their fingers crossed regarding the state of the housing market. There reasons for this are slightly different however. Speculation of a housing crash similar to the one currently occurring in the United States has led to hundreds of analysts giving their assessment of the situation, and no two seem to feel the same way. The cost of the average home fell by one per cent in the last quarter of 2007, and some analysts have predicted a far greater drop by the end of this year.
"Although my forecast is for house prices across the UK to fall eight to ten per cent in 2008, the decline may be much worse in certain areas," said Neil Woodford of Invesco Perpetual, a man who controls nearly £20 billion of investors' money.
But a recent Halifax report forecast that house prices would remain the same throughout 2008, despite the slow down in the market at the end of last year.
"We expect sound economic fundamentals and lower interest rates to support house prices," said Halifax chief economist Martin Ellis. "Nationally, we predict that house prices will be flat in 2008."
What we can be sure of is that the government is concerned about the situation. Chancellor Alistair Darling addressed an Engineering Employers Federation dinner in London recently, and stressed how keen he was to avoid the boom and bust fluctuations of the late 80s and early 90s.
"Market conditions today are very different from those we saw in the early 1990s. Interest rates remain at comparatively low levels - as do mortgage rates. And unemployment is currently at 30-year lows," Darling told the federation. "What's more there are important differences between the housing market in the US and the housing market here.
"Lenders in the UK have been more responsible in taking account of an individual's ability to pay. And demand for housing outstrips supply."
He added that in the long term the government wanted to build more homes in order to keep property prices in check. In the short term, however, he hinted that the March 12 budget will be used to encourage the take-up of affordable fixed-rate mortgages.
"For many households, particularly those on low incomes, fixing the level of mortgage repayments for several years makes real sense; and it can also contribute to wider macroeconomic stability," he explained.
But what does all this mean for house prices? The most sensible advice seems to come from former Bank of England policy maker Stephen Nickell. He has admitted that a downturn is likely in the short-term, but feels that no permanent damage will be done.
"`The actual size of the downturn is minute,'" said Nickell, who now advises the government on the residential property market. "How big is it going to be? I don't know, but it won't be very big."
"If you've got half a million to invest, I could well imagine buying some property," he added. "Recently, U.K. slowdowns have been gentle and fair."
