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Why the experts are right about house prices

Donna Ferguson
by Lovemoney Staff Donna Ferguson on 29 January 2013  |  Comments 8 comments

Most property experts believe property prices won't fall this year. And there are good reasons for their confidence.

Why the experts are right about house prices

House prices are expected to either remain broadly flat or rise by no more than 2% this year, according to expert commentators at the likes of Rightmove and Halifax.

Last week, Cliff D’Arcy argued that such predictions are wrong. He cited several excellent reasons why he expects house prices to weaken this year - but he didn’t examine any of the reasons pundits could be right in predicting prices will stay flat or rise slightly.

So today, for balance, I’d like to look at five reasons why the experts could be right about house prices - or at least, why they are more positive than Cliff. However, the outlook is certainly not all rosy, so I’d urge you to read Cliff’s article as well as this one, review all the evidence yourself, and make up your own mind.

1. Mortgage approvals are up

According to the Council of Mortgage Lenders (CML), mortgage approvals to home buyers have increased in recent months. In its latest market commentary, it reported: “Seasonally adjusted house purchase approvals were up in November and - at 54,000 – were the strongest since the start of 2012 (when lending was buoyed by the looming end to the Stamp Duty concession for first-time buyers).”

Mortgage approvals to first-time buyers have also increased, with the CML reporting a 19% year-on-year increase in the number of loans advanced to first time buyers.

2. There are special deals for first-time buyers

First-time buyers are the lifeblood of the property market, but many struggle to save up a big enough deposit to buy nowadays.

Recently, special deals on offer from certain lenders have started helping some first-time buyers to take that difficult first step onto the property ladder when they otherwise would not be able to.

For example, earlier this month, Barclays launched its ‘Family Springboard’ mortgage, which allows first-time buyers to buy with a 5% deposit - provided family members put savings equal to 10% of the purchase price in a special Barclays savings account. You can read more about it in Barclays Family Springboard: buy a house with 5% deposit.

3. Mortgages are cheap

Mortgages are at their most affordable level for a decade, according to a recent study by Halifax.

The lender found that mortgage payments for a new borrower are at their lowest level in relation to earnings for a decade - with mortgage deals currently almost twice as cheap as they were at the height of the financial crisis. The average borrower puts just 28% of their disposable income towards their mortgage payments nowadays, compared to 48% in 2007.

4. More properties are coming on to the market

Rightmove has reported a 22% increase in the number of properties coming onto the market this month, compared to a year ago, and has seen a 27% increase in its web traffic as well.

Rightmove spokesperson Miles Shipside said: “With new seller prices up by 2.4% (£5,369) year-on-year, more sellers coming to market, and a new year jump in Rightmove traffic, early indicators offer reasons to be confident that both prices and transaction numbers will see a modest rise in 2013.”

Property listings are still down 37% on five years ago, before the full impact of the credit-crunch, but Rightmove says that current levels are the highest recorded at the beginning of a new year since 2008.

5. Buy-to-let investors are increasing their portfolios

There are various reports that buy-to-let investors are buying or intending to buy more properties. The Association of Residential Letting Agents has reported that the average number of properties owned by landlords increased from seven to eight at the end of 2012. Meanwhile, brokerage firm Mortgages for Business found that 80% of the landlords it surveyed are looking to refinance in order to buy more properties or move to a cheaper deal, compared to 55% a year ago.

Similarly, 74% of the professional landlords surveyed by Rightmove said they intended to buy and increase their portfolios within the next 12 months. 

These are just some of the reasons to believe house prices might increase over the next year - but as Cliff’s article makes clear, there are also many good reasons to believe prices might weaken as well. So please read this article in the context of his.

What do you think will happen to house prices this year? Please let us know your thoughts using the comments box below.

More on house prices:

Why the experts are wrong about house prices

How house prices changed around the world in 2012

What 2013 has in store for house prices

What's the 'right' price of your house?

How rows with your neighbours could hurt your house price

What's your property worth?

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Comments (8)

  • alexms
    Love rating 8
    alexms said

    1. See 5 below.

    2. I'd read the smallprint quite carefully on that 10% if I were you...

    3. Mortgages are cheap - 28% isn't cheap, even though it's less than the completely unmanageable 48%. A ferrari is 'cheap' if it comes down from 200,000 to 100,000, but that does not make it affordable for most people.

    4. More properties coming onto the market suggests prices will go down, not up.

    5. Buy-to-Let investors increasing their portfolios suggests rents will go up. As the BTR market consolidates around fewer, bigger, capital-rich professional players, rents will increase relative to prices. That they are buying suggests they may expect a floor has been reached in falling prices, but they make their money from rent-minus-costs, not price speculation. NB The falling prices observation is not guaranteed, it could be their wish to take advantage of historically low borrowing rates that are increasingly expected to endure into the medium term, even if this means taking short-to-medium term nominal capital losses. The same only applies to retail housebuyers if they are moving out of rented accommodation.

    Report on 30 January 2013  |  Love thisLove  0 loves
  • Nickolarge
    Love rating 4
    Nickolarge said

    I have to support the above comment on point 4. What other market would see a rise in prices as a result of more product coming to market during a time of negative growth and miserly pay rises (if you are lucky enough to be getting any rise at all). The fact that sellers have been reluctant to go to market and even more reluctant to do so at the lower prices required to find a buyer is one of the main things that have been falsely holding prices up. Lack of supply has forced those who think that they need to buy now to pay over the odds.

    House prices in this country still fail all reasonable affordability tests. That must change.

    Report on 30 January 2013  |  Love thisLove  0 loves
  • nickpike
    Love rating 308
    nickpike said

    This report fails to take a very important factor into account. The economy is screwed. We therefore have odd situations, like 0.5% BoE base rate. This is a fake interest rate leading to a fake economy leading to fake house prices. A number of things can push interest rates up, from a bond bubble collapse (looking likely), Spain or Greece leaving the EU (even Cyprus), the pound dropping against other currencies (happening at present), the inability for any more money printing (QE) and the possible loss of our AAA rating to name but a few. That is how fragile the economy is at present. QE is important, but there has been a lot of noise of late as to how QE is adversely effecting all sorts of things and it should not continue.

    So I buy a house with a mortgage at silly, low interest rates. BoE base has got to go up some time. Not may go up, but will certainly go up. But when? Well, a mortgage is for 25 years. If rates go up in 5 years time, I would still be paying back mostly interest. Rates back to 5% would easily double monthly repayments.

    Can you see that the immediate future is far too unstable to encourage people to take on these massive loans?

    I prefer to listen to people with good logical economic sense. There are too many spivs around still trying to talk up the market.

    Bear this in mind, BoE base rate is 0.5% (nearly zero) and 80 billion has been printed to allow for easy lending. House prices should be going to the Moon. At best they are flat. Any change in the economy, and especially base rate will cause prices to plummet. Remember prices dropped 25% in just 18 months from August 2007 (Halifax and Nationwide figures) when the BoE rate was 5% (or thereabouts).

    Buying a house now is very risky.

    I saw only today a repossession originally purchased as a new build for 300k (Zoopla) and on the market, first at 210k and has dropped steadily to 180k now. Some poor devils have taken a massive hit. The housing market in the UK stinks, and this coalition are part of the problem. A real Conservative party would never allow this situation to linger on and on.

    Report on 01 February 2013  |  Love thisLove  1 love
  • george19a
    Love rating 28
    george19a said

    Interesting - Just because a property sold for 300k does not (Sadly) mean that it was ever, ever worth 300k. Whilst this may not be applicable to the property mentioned, there were sadly thousands of properties sold in 2006/07 that sold for prices way above their true value.

    The scams ranged from a 10/30% cash back on a single property, effectively defrauding the mortgage company that lent anything from 90% to 125% against an inflated price, to organized fraud on a massive scale where whole blocks of flats were sold at inflated prices to a single purchaser on the back of a block mortgage that was far in excess of the value.

    As if this wasn't enough the Banks also managed to lend vast sums to people that would never be able to pay it back and then everybody stands round scratching their heads (being polite here) wondering where the money went!!!

    Irrespective of where the money went, I do know who is paying for this madness and the people that should be in court are the lunatics that were running the country at the time, not collecting fistfuls of cash from fancy new jobs or gongs for public service.

    Report on 01 February 2013  |  Love thisLove  0 loves
  • fingerpicker
    Love rating 2
    fingerpicker said

    The reason that house prices won't fall is that they never have and never will. They have been deliberately escalated in value to feed the greedy and amoral interests of the Estate Agent and Property Developer. Whatever befall mortgages, banks, building societies in their attempts to help out the person seeking to buy a property, it is all to no avail because of the unrelenting avarice of the housing market itself and the fees and bonuses that surround it.

    Report on 03 February 2013  |  Love thisLove  0 loves
  • sodit
    Love rating 135
    sodit said

    They've not been manipulated for the benefit of the property developer, they've been manipulated for the benefit of the politicians, whose electorate feel have done a good job if they've become wealthier.

    Apparently, the government wants to save money. Great, Cut housing benefit. This will reduce the amount that tennants will be able to pay, that will reduce what landlords will be willing to pay for houses, that will reduce the price of housing...

    ...but of course, that would be deflationary, and the government is s**t scared of deflation.

    Report on 03 February 2013  |  Love thisLove  1 love
  • krustallos
    Love rating 45
    krustallos said

    @sodit The government HAS cut housing benefit. You may not have noticed. However a friend of mine was made homeless as a result, for having the temerity to think she could live on her own under the age of 35. More cuts are about to hit. Doesn't seem to have had much effect on house prices yet.

    Report on 04 February 2013  |  Love thisLove  0 loves
  • edwardmk2879
    Love rating 65
    edwardmk2879 said


    You are so out of your depth.

    Stop being a mouthpiece for vested interests and think for yourself.

    I wish you well, but don't drink the Kool Aid and buy a house unless you have done some very thorough scenario planning with a spreadsheet. and like the answers.

    Report on 18 June 2013  |  Love thisLove  0 loves

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