“I’ve bought and sold a lot of homes, and normally I’m filled with dread because it takes so long,” says Draper, who runs a vintage clothes business from her home, where she lives with her son, Charlie, 11.
“But this time I was told by agents that buyers were gagging for properties like mine. Even before I’d signed a contract with one agent, a man visited and offered the asking price. I said ‘no’ as it was the first viewing, but he raised his offer, effectively bidding against himself. So I accepted.”
Draper’s experience is not unique in the capital’s super-buoyant market, where demand has exceeded supply since January. Savills estate agency says that, as a result, parts of London, including Battersea, have seen rises of 4.6% in the three months to July and of 14% over the past 12 months. Prices in the outer London suburbs have risen by up to 9% over the past year.
That picture may be changing, however. Savills says that 32% more homes went on sale in London in the second quarter of the year than in the first, which means only 2%-3% will be added to average prices this autumn, although some particularly popular areas may still see hikes of 5% or more over the next four months.
Liam Bailey, head of residential research at rival agency Knight Frank, agrees. “The recent growth rate of London prices is unsustainable in the longer term,” he says. He, too, expects a further 3%-5% at most to be added to prices before Christmas.
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Despite the slowdown, London will remain strong for the rest of 2006, but the picture is less uniform elsewhere. While some parts of southern England are experiencing a ripple effect from London’s big rises, househunters in regions further from the capital may be able to snap up an unexpected bargain in the autumn market.
The mixed outlook will become even more confusing if the Bank of England increases its base interest rate by another 0.25% to 5%, as analysts such as the Halifax and Nationwide house price index teams have predicted.
The five interest-rate increases between November 2003 and August 2004 led to a rapid fall in property inflation from an all-UK average of more than 20% in July 2004 to 2.3% by the time rates were reduced again in August 2005. Is a similar sharp drop in price growth on the way now? Some experts think so.
“Prices have passed their peak for 2006. Stretched buyer affordability, exacerbated by the rise in interest rates, means the increase seen so far this year is no longer sustainable,” says Miles Shipside, commercial director of Rightmove, a property website.
“Increasing costs of ownership, added to rising energy bills, have stretched affordability to levels where volumes of sales could begin to suffer. Sellers may have to reduce their price expectations,” he warns. So, London apart, which regions are the winners and losers in the current market?
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Southeast: Data from Halifax estate agency show that Oxford, Slough, Guildford and Tonbridge have seen small price falls in recent months, although the region as a whole has experienced a 5% gain this year. Portsmouth, Southampton and all of coastal Sussex, especially Hove, have had large rises. The Halifax expects an average of only 1%-2% to be added to prices in the southeast this autumn.
East Anglia: “During the second quarter of 2006, house prices in East Anglia grew faster than anywhere else in England,” says Fionnuala Earley, group economist at the Nationwide. A large influx of migrant workers in Norfolk and Suffolk has been keeping demand well ahead of supply, so prices are expected to rise a further 3% by Christmas.
North of England: The north-south divide is coming back, with prices in the north predicted to stay static this autumn. Whereas too few homes on sale have led to rocketing prices in the south, “the supply of housing for sale has continued to see above-average growth” in the north, according to Richard Donnell, head of research at Hometrack, a property consultancy.
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First-time buyers are feeling the pinch, too, and their reduced numbers in the region will put a brake on prices. Allsop, a Leeds-based estate agency, says: “Affordability will remain an issue. Growth rates are expected to remain modest in the remainder of 2006.”
Midlands: “During the period April to June, prices in the West Midlands increased at only one third of the rate of the UK as a whole,” says Earley. “Prices in the West Midlands were 0.3% higher in the second quarter compared with the first, while the rate of growth over the same period for the UK was 0.9%.” Prospects for the autumn are even more muted, as the supply of homes on sale now exceeds demand for the first time this year.
Wales: After three years of 10%-plus rises, Wales recorded a slight dip in the second quarter of 2006, according to the Halifax. Year-on-year growth is only 3.5% and falling. Some places, such as Merthyr Tydfil and Pembrokeshire, are still showing big rises, but many other areas are dropping. “Small rises and falls are part of the typical pattern of a flattening housing market,” says Phil Delaney, regional manager of Halifax estate agency.
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Southwest: This will remain a growth area this autumn. Savills says property prices in the southwest have risen 12.3% annually over the past decade, with figures for the first half of 2006 corresponding to this trend. Expect buyers from the Midlands, southeast England and London to push up prices another 3% this autumn.