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Property sector sees surprise rise in house prices, but outlook for 2010 is highly uncertain, says Nationwide
Regional increase in the price of a house (pdf)

House prices rose 5.9% in 2009 after a decade in which property values more than doubled, according to Nationwide building society.

Despite the 2007-2009 price crash, Nationwide said the noughties had generally been “a very strong decade in terms of house price growth”, with prices rising by 117% between the fourth quarter of 1999 and the fourth quarter of 2009.

The area that tops the table for house price growth this decade is the London borough of Newham, where typical prices are up 190% since the start of 2000. This turbo-charged performance indicates Newham – officially ranked one of the most deprived areas in the country – is benefiting from the “Olympic effect”. The borough will host the majority of the games, and Stratford and Canning Town are undergoing regeneration. Neighbouring Tower Hamlets and Hackney also enjoyed a big uplift, with prices up 146% and 143% respectively.

Other star performers are spread far and wide across the country, including Plymouth and Cornwall, where prices are up 160% and 152%; Aberdeenshire and Moray in Scotland (159%); the cities of York (146%) and Sheffield (144%); and the Isle of Wight (152%).

Areas which saw some of the smallest price rises over the decade – about 70% – include Bracknell Forest and nearby West Berkshire.

Nationwide said that in 2009, the UK property market surprised commentators by bouncing back from the previous year’s double-digit falls. The new figures indicate that as an investment, residential property performed considerably better than shares and many other asset classes. But many commentators insist that performance cannot be repeated; Nationwide’s prediction for house price growth in 2010 is “something close to 0%,” and the Halifax is taking a similar view.

Nationwide said the average price of a home was £162,103 up from £153,048 in December last year. Its index showed prices rose by 0.4% in December, the lowest monthly increase since the spring.

Taking into account overall retail price inflation over the period, UK prices were up 68% in real terms, making this the strongest decade on record. In the 1990s, prices fell by 14% in real terms.

Nationwide’s chief economist, Martin Gahbauer, said last year’s turnaround had been unexpected after 2008’s 15.9% drop in average prices. “Few could have foreseen this development at the start of the year, when the near term price trend was still pointing to a repeat of the double digit annual decline experienced in 2008.”

With hindsight, there were good reasons why the housing market had defied the recession. Low interest rates, the re-entry of cash buyers to the market, and a continued lack of homes for sale had all put upward pressure on prices, despite only a modest increase in demand.

“There are of course other factors that have been important in driving the recovery of house prices. Most notably, unemployment has not risen by as much as would normally be the case in such a deep recession, as many employers have kept workers on reduced hours and lower pay.

“In addition, the stabilisation of the banking system and emerging signs of economic recovery have helped to boost consumer confidence and tempt previously hesitant buyers back into the market.”

While the strong housing market performance of the noughties is good news for homeowners and the large numbers who have invested in property as an alternative to a pension plan, it has been disastrous for those wanting to get on the housing ladder.

Looking at the prospects for this year, Gahbauer said there was “still a significant amount of fog” obscuring the outlook for the market, with uncertainty over the job market and mortgage availability. “This year’s recovery has to some extent been driven by transitory factors and there are reasons to believe that it will lose momentum over the coming year. At the same time, there is no obvious catalyst on the near-term horizon that would trigger significant renewed falls in prices.”

As a result, Gahbauer said it was unlikely there would be significant movements up or down over the coming year.

Howard Archer, chief UK economist at IHS Global Insight, said the slowdown in price growth recorded by Nationwide over the past few months strengthened his belief that prices would fall back in 2010, driven down by rising unemployment and growing problems with affordability.

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Property market professionals report pressure to complete house purchases before the tax on homes costing £125,000-£175,000 is reinstated in the new year

Solicitors, conveyancers and mortgage lenders are reporting a rush to complete house purchases before the reintroduction of stamp duty on properties costing less than £175,000 on 1 January.

The government announced a stamp duty holiday from September 2008 on properties costing between £125,000 and £175,000 to help first-time buyers and encourage the property market during the recession. Properties costing less than £125,000 were already exempt. But the tax, levied at 1% of the purchase price, will be reinstated on Friday, adding up to £1,750 to the cost of buying a new home.

Property market professionals said there had been extra pressure to finish transactions before the stamp duty is reintroduced.

Staff at Countrywide Property Lawyers, the biggest firm of residential conveyancers in the UK, have had to work overtime and weekends to cope with the extra business. Paul Creffield, the firm’s chairman, said: “We’ve been extremely busy through November and particularly December: we’ve been dealing with hundreds of completions every day. In the history of the business we’ve never known anything like this.”

Carole Berry, of Rollingsons Solicitors, said: “I had a simultaneous exchange of contracts on the 23 December to make sure the deal went through in time. It was on a property costing £130,000 so the saving would only be £1,300 but for a first-time buyer that can make a big difference.”

Nationwide Building Society also reported more completions than expected going through in December. A spokesman, Anthony Hua, said: “We have seen a positive impact in terms of mortgage completions, but it’s too early to quantify.”

Ray Boulger, of the mortgage brokers John Charcol, said the experience of conveyancers and lenders in December fitted in with the pattern of applications from first-time buyers in the autumn.

It typically takes two to three months to go from making an offer and applying for a mortgage to completion, and John Charcol saw more first-time buyers in October than November or December.

Despite the recent downturn in the property market, the average price of houses in England and Wales is £161,554, falling within the band that will be subject to 1% stamp duty again, according to official figures published today.

The Land Registry said house prices in the UK rose by 0.9% in November, and although they fell by 0.3% over the year, it was the seventh month in a row in which the annual rate of decline had decreased.

In London prices increased by 2% in November and 3.5% over the year – the biggest rise in any region. But prices elsewhere remain depressed.

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