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News: Rate hikes cool frantic market

Wed, 05 Sep 07

The recent buoyant price growth within the property market has cooled over the last three months as interest rates have started to take effect and sellers have adjusted their expectations on achievable price, according to the latest data from Spicerhaart...

The annual growth in average house prices in the UK has slowed considerably, with only 30% of its agents reporting significant growth (7% plus) compared to 50% of agents six months ago.

The average annual price increase was 5.46% in August compared to 6.59% in February. In the current climate with affordability levels stretched, buyers are price sensitive (see chart 1 in attachment).

More buyers albeit price sensitive

The slowing price growth is not diminishing market activity, however. Although the number of properties coming on to the market in the last three months has remained relatively stable, the proportion of agents witnessing slightly higher (3% to 9%) or significantly higher (10% +) levels of buyers entering the market is at 43%, with only 13% of areas witnessing a drop in the number of buyers on their books (see chart 2 in attachment).

Despite the increase in buyers, the market is no longer frantic and only the sensibly priced properties are in demand. Buyers are taking action to protect their finances and are prepared to bide their time to ensure that they do not pay over the odds and sellers have had to have lower house price expectations as a result.

First time buyers not returning

Although the percentage of buyers is up, the level of first time buyers in 60% of haart’s branches has seen a slight decrease (-3% to -9%) or significant decrease (-10% or more) over the last three months.

This can be put down to the impact of the base rate rises taking effect. However, with prices stabilising and a possibility that the interest rate has or will shortly peak, the level of first time buyers is predicted to pick up again in the next quarter.

The Office for National Statistics, has already released figures on city bonuses, with payouts increasing by 30% to a record £14 million this year, a rise twice the size of that in 2006.

A large proportion of this money is predicted to be channelled into the property market, boosting prices within the most prestigious areas in London and creating a ripple effect, pushing up prices in the surrounding areas.

London and the South East are continuing to fuel overall national house price growth, with particular hotspot pockets leading the growth. All but one of the 25 areas that have witnessed the highest year on year growth are within Greater London, East Anglia and the Home Counties (see appendix in attachment).

Lowering expectations

Paul Smith, chief executive of haart estate agents, comments: “Following a prolonged period of extremely buoyant growth, house price inflation has begun to slow across the UK, as the succession of five interest rises since last August begins to take effect. With buyers now increasingly price sensitive, sellers have lowered their expectations on achievable price.

“However, London has not been affected in the same way, with its property market still showing the strongest levels of price growth and activity in the country. The high level of activity over the bank holiday weekend is an early indication that the autumn market is set to be buoyant, as consumer confidence remains high due to a belief that interest rates may have finally peaked.”

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