UK House Prices: What to Expect in 2012

The value of homes in the UK has been broadly stable during 2011, posting slight gains at the start of the year followed by marginal declines in more recent months...

The value of homes in the UK has been broadly stable during 2011, posting slight gains at the start of the year followed by marginal declines in more recent months. According to the Nationwide House Price Index, the cost of residential property increased by one per cent between January and March this year compared with the final three months of 2010. At the end of the second quarter, house prices rose by a further 0.2 per cent before beginning to fall. In the three months from July to September, a 0.1 per cent drop was recorded. However, it seems this trend has turned around, with the most recent figures from Nationwide showing month-on-month increase of 0.4 per cent in November.

Chief economist at the financial organisation Robert Gardner described property values as "surprisingly resilient" given the poor economic outlook for the country. He commented: "With the UK economic recovery expected to remain sluggish well into 2012, house price growth is likely to remain soft, with prices moving sideways or drifting modestly lower over the next 12 months." Research published by Halifax recently revealed that residential property values fell by 0.9 per cent between October and November, however, following a 1.2 per cent increase the previous month. Despite these fluctuations, housing economist at the bank Martin Ellis noted the market has been "remarkably stable" in 2011.

According to Mr Ellis, Halifax is expecting "the market to remain broadly unchanged in terms of both prices and sales over the coming few months". Some experts in the real estate industry disagree with this assessment, though. In an interview with This Is Money, Howard Archer, chief UK and European economist at IHS Global Insight, predicted house prices will slide by five per cent from their current level in the first six months of 2012. He noted that household finances look set to ease in the second half of the year as inflation drops back, although he added: "Unemployment is likely to rise further and wage growth looks set to remain muted, so the overall environment will still be very tough for households."

In September, IHS Global Insight stated there is the "very real possibility" that house prices could fall further than five per cent in the coming months due to the "substantial downside risks" to the UK's economic prospects. A recent report from Halifax predicted "broad stability" for the value of residential property during 2012, however, the firm conceded the "outlook for both the economy and house prices is particularly uncertain", due in large part to the ongoing problems in the eurozone. There does appear to be a consensus among those in the real estate sector that Britain's house prices will fall further, with some commentators noting this would not necessarily be a bad outcome.

Spokesman for PricedOut Matt Griffith recently stated falling property values would help first-time buyers get back into the market. However, he advised anyone hoping to enter the real estate sector as a new homeowner to avoid doing so in the coming year and to wait for "a saner housing market and lower prices". Chief executive officer of Firstrung Paul Holmes, meanwhile, also suggested taking a cautious approach. He is more confident of a decline in property prices, though, anticipating an average drop of one per cent per month for the next three years. "I would estimate that property would reduce in value by approximately 33 per cent over the next three years. But it won't be smooth," he asserted.

There are, of course, some markets in the UK where a decrease in the cost of buying a home is unlikely, with London a prime example. House prices in the capital have consistently outperformed other regions of the country over the past 12 months and research released by Savills last month estimated they will continue to do so into next year, climbing by a further three per cent. However, the organisation is optimistic of further growth of prime real estate assets in the next five years, predicting overall rises of 22.7 per cent in this timeframe. By contrast, regional property markets in the UK are likely to experience price falls of around three per cent next year, with the firm not expecting these areas to return to growth until after 2013.

- Friday 16 December 2011

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