According to one of the country’s foremost economic forecasters, house prices are set to drop by more than 20% during the course of the next two year, caused by a combination of imposed government spending cuts, a sharp spike in unemployment and tax rises.

Capital Economics, which is a consultancy firm headed by Roger Bootle, has anticipated that house prices will drop by 5% over the course of 2010, followed by falls of 10% in both 2011 and 2012. The group has predicted a total fall in house prices of 23% from the beginning of 2010, which represents a far more substantial fall than the crash of 19.3% experienced during the recession.  The numbers from Capital indicate that the second half of 2010 could see house prices coming in for a very difficult time as house prices are at the moment 3% higher than at the beginning of the year according to the Nationwide Building Society. The figures from the Nationwide map those from Capital Economics.

"Higher taxes, spending cuts and rising unemployment all point to fresh house price falls this year and next," the forecasters stated in a report. "The benefits of low interest rates for tracker, fixed-rate and even bad-credit mortgages will be undermined by a fresh tightening in mortgage lending criteria."

This comes as the second report in under a week that makes depressing reading for homeowners in the UK. Further to this, PriceWaterhouseCoopers issued a similarly portentious warning: "There is a 70pc chance that UK house prices will still be below peak 2007 levels in 2015 in real terms … and that real house prices [after inflation] may not regain their previous peak levels until around 2020".

Average house prices hit their peak of roughly £187,000 in October 2007, and then crashed for 16 consecutive months, according to figures from Nationwide. The recent recovery has left the average house price standing at £170,111, a figure 9% lower than at the apex of the boom period. Capital Economics underscored their rather gloomy outlook by indicating that the house price-to-earnings ratio still stands far higher than its 4% long-run average at 5.5%. They also stress that mortgage rates are only likely to get more expensive still. They anticipate that London will be “hardest hit by the second leg of the correction.” The firm also went on to caution, however, that the forecast for 2012 is “highly uncertain.”

Their outlook is principally founded on a far worse economic outlook than has been postulated by the treasury. Capital Economics have forecast that the economy will grow by only 1% in 2010, 1.5% in 2011 and 2% in 2012, as opposed to the treasury’s figures of 1.2%, 2.3% and 2.8%, respectively.

According to the very latest property price index produced by the UK government, house price values continued to rise during May, which seems to suggest that the housing market, despite the fact that it is slowing, is still performing better than has been suggested in other market reports.

The UK House Price Index is published by the Department of Communities and Local Government, and it incorporates data which is based upon mortgage completions during May of this year, and the Index itself indicates that house prices rose by 0.7% during May, and are also 11% higher as compared to the same month last year – particularly good news for first-time buyers concerned over the sustainable value of a newly purchased property.

The latest government index seems to be rather out of step with other recently published reports, although this could be due to the fact that each report will be calculated on a different basis.

The latest index does, however, contribute to the mounting uncertainty as to the condition of both the commercial and residential property markets, and this view was espouses by Simon Rubinsohn, who is chief economist at the Royal Institution of Chartered Surveyors. Mr Rubinsohn stated that May’s 0.7% increase is certainly a stronger rise than was indicated by the Nationwide Building Society for the same month, and that the report also contradicts the falls shown in reports published by both the Halifax and the Land Registry.

 ‘This divergence in part reflects the fact that the indices are gathering price data at different points in the house purchase process. However, relatively low transaction volumes may also be adding to the volatility of the individual series,’ said Rubinsohn.
 
‘The regional dimension is likely to remain significant, however. Price expectations are still positive in London, the South East, Scotland and the East Midlands but strongly negative in Wales, East Anglia and much of Northern England,’ he concluded.

The average house price Index for the UK-which is mid-adjusted-reached £209,505 during May of this year, and the figures rose on a quarterly basis by 1.7% for the quarter, which compares with a 2.9% rise for the quarter that ended in February of this year.

In overall terms, average house prices climbed 11.7% in England, by 3.7% in Scotland and by 10.9% in Wales. Despite this overall trend, the figure dropped by 1.1% in Northern Ireland. As compared to a year ago, the average annual prices paid by first-time buyers in May 2010 stood 11.6% higher than at the same time last year; and average prices paid by former owner-occupiers stood 10.8% higher.

The report also indicated that average prices paid for new properties throughout May 2010 were 6.5% higher than at the same time last year, and the average prices for pre-owned houses were 11.3% higher.

According to the results of a recent survey, the last decade has witnessed a five-fold increase in the number if real estate millionaires in the UK, and more than 100,000 new property millionaires have been created since 2000. The figures amount to an amazing 393% increase with the research also indicating that for the period during the global credit crunch, there has been a three-in-ten decrease in actual millionaire properties as the financial downturn really begins to take hold – unsettling news for some who may have been looking at getting into the market at that time by purchasing for the first time.

The research from Santander Mortgages also showed that there are also now almost 332,000 residential properties in the UK that are valued at more than £1 million, which represents an almost five-fold increase on the figure for 2000 which stood at 26,776. The vast majority of the million pound-valued properties (around 78%) are located in London.

Despite the fact that the credit crunch has resulted in more than 40,000 homes losing the coveted million-pound status (between 2008-9), which represents a value reduction of 29%, the market for million pound-plus houses has certainly recovered. During the course of just the last year, the number of million pound-plus houses has climbed to roughly 29,000, taking the market for such properties back close to its peak figure as it stood in early 2008.

Roughly 78% (103,168) of such properties are located in the Greater London area, and the capital’s south west postcode lays claim to almost 29% of the UK’s millionaire properties. In fact, the top ten places in the Santander Mortgages’ Property Millionaire League Table are occupied by postcodes in the Home Counties and London, including such towns as Kingston-upon-Thames, Hemel Hempstead and Guildford.

London’s south east area postcodes lay claim to an incredible 23-fold increase in its number of property millionaires during the past ten years.

‘For many of us our home is our castle and in recent years we’ve often viewed our home as a key investment, too. Whether you’re a property millionaire or not, prospective buyers and those re-mortgaging need to make sure that they get a fair deal on their house and mortgage,’ commented Phil Cliff, director of mortgages at Santander.

According to a new report from PriceWaterhouse Coopers, residential property prices in the UK will most likely not recover over the course of the next five years, and it is even likely that the real cost of properties will be lower in 2015 that in 2007.

The PwC report and analysis stems from real house prices-or the actual value of property when the impact of inflation is ignored-and their analysis indicates that property prices might stay below peak levels for the course of the next decade, which would directly impact on roughly 3.6 million people that have bought properties since property prices achieved their record levels back in 2007.

The analysis also serves as an indicator of the massive uncertainty surrounding the future of house price prospects, and that property is a somewhat risky asset that will not guarantee definite future returns.  It also indicates that the  trebling in house values between 1997 and 2007 might be reversed, which would seriously impact on home owners, speculators, buy-to-let investors as well as those investing in real estate as part of their pension plans.

Current indications in income growth, housing supply and interest rates result in the fact that property owners will be unable to rely on the fact of their homes climbing in value, the report indicates.

In the middle part of 2007, the average property was over-valued by roughly 25%, and despite the fact that this figure has now dropped to around 5-10%, prices continue to remain vulnerable to further market knocks, the Economic Outlook report states.

The reports gravest warning comes when it states that there exists a 70% possibility that the real cost of a property is likely to be less in 2015 than it was in 2007. It also indicates that the second half of this year will most likely witness falling house prices.

‘The possibility of a renewed fall in house prices over the next few years, particularly in real terms, cannot be ruled out as mortgage interest rates start to rise again,’ commented John Hawksworth, head of macroeconomics at PricewaterhouseCoopers.

‘While it can be argued in theory that house price changes have little effect on overall UK wealth, our econometric analysis suggests that an unanticipated future fall in house prices could have a significant impact in dampening the speed of the recovery in consumer spending in the medium term,’ Mr Hawksworth added.

According to the latest survey from property consultants Cluttons, parents who left London to live in the Home Counties a generation ago to bring up their children are now returning to the capital. As a result of the children having finally left home and with prices in certain areas of London now at their most affordable levels for a few years, Cluttons have noted a rise in the number of middle-aged and retired homebuyers eyeing a return to the bright lights and excitement of the London lifestyle.

It is widely held that London has undergone significant changes during the last five years or so both in terms of residential as well as commercial developments, having become mainly a cultural centre with new and improved public transportation links. Many middle-aged and retired homeowners are subsequently returning to the capital as they relinquish large home with time-consuming and high-maintenance gardens to take up residence in less demanding properties.

One particularly popular area is the South Bank, and the area’s constantly-changing river views and closeness to the city’s ever-growing cultural attractions-as well as the borough market, which is renowned for its local eateries and fresh produce, makes it especially attractive.

‘Traditionally, this stage of the cycle involves downsizing to release equity and relocating to a more rural or coastal setting. However, we have seen a growth among so called empty nesters, who are postponing their retirement dates and seizing the chance to return to London to rediscover a lifestyle they had at the beginning of their career,’ commented James Hyman, partner for residential sales at Cluttons.
  
‘Many are looking to trade in their large detached homes with substantial gardens for apartments with good internal amenities and security such as porterage and based in locations easily accessible to the cultural attractions London has to offer,’ Mr Hyman explained.

Such properties south of the river have also become increasingly attractive to foreign buyers-particularly those from the Middle East, and new developments have particularly caught the eye around Tower Bridge and London Bridge. Much improved transportation links giving access to the City and the West End along with the attractions of such cultural icons as the Globe Theatre, the Tate Modern and the South Bank Arts Arena being especially popular with such buyers.

A new report has shown that activity in the £500,000 and above mortgage market in the UK has increased by a massive 162%, year-on-year. This significant rise clearly reflects  that dampened market conditions took prominence during the first half of last year, although recent market trends illustrate that market growth still has forward momentum, according to the newest prime mortgage market briefing from UK property firm, Knight Frank.

In the three months to May, the market saw a 26% increase in £500,000 and above property completions, although May’s general electricity definitely had an impact on all market activity in the early part of the mortgage process. This was illustrates by the fact that the total number of offers fell by roughly 40% in May as compared to February, according to the report.

However, although the prime mortgage market is certainly far healthier than at the same point last year, there appears to be a growing swell of  evidence that mortgage lenders have become more particular about just whom they will actually make offers to in terms of loans.

‘After a long period of steady decline the average LTV for £500,000 plus mortgages rose in May for the second month in a row to hit 68%, up from 53% in March, lenders are widening their spread of products on the market, despite this uplift in average LTV the market at this level is still being driven by equity rich purchasers,’ commented Simon Gammon, head of Knight Frank Finance.
 
‘Average rates on newly agreed mortgages have moved up slightly over the past month, from 3.27% to 3.40%, but are still lower than average rates last May of 3.96%. The rise in average rates is related to the trend towards higher LTV products. Borrowers are increasingly looking at fixed rate deals with concerns from many to secure deals before rates rise,’ added Mr Gammon. He further commented that activity at the £1 million and over market level is now being more and more driven by those coming fresh into the market. Asian and Middle Eastern banks have become more and more active in the UK market, and are increasingly looking to the higher end of the market through overseas investment.

According to figures in a new report, the real estate sector in Edinburgh is exhibiting marked signs of recovery, and prime properties in the West End and New Town districts have produced the strongest performance this year so far. The registered number of potential house buyers including overseas investors has risen by more than 120% over the last six months, with the value of Edinburgh’s prime houses rising by an average of 0.7% for the year so far according to the figures from the latest report by Knight Frank.

Top end residential properties with values of less than £1 million rose by nearly 3% during the first half of 2010. However, sellers’ price expectations will need to stay realistic in order to garner continued interest, according to Knight Frank’s report.

Knight Frank’s Prime Edinburgh Residential Index illustrates that average property prices rose by 0.3% during the second quarter of 2010, and this took total growth to 0.7%. For the annual overview, prices have climbed by 0.3%, and this illustrates the current tough market conditions.

‘It is very encouraging to be able to report that the market for Edinburgh’s best houses and flats has started to show some signs of recovery. Values are by no means recovering across the board and are still some way below the levels seen prior to the credit crunch, but some sectors of the market are undoubtedly in far better health than they were at the end of 2009,’ according to Matthew Munro, head of Edinburgh city sales, Knight Frank.

The report also indicates that the most demand has been seen in the market for properties valued at under £1 million. A rise of more than 1.5% during the second quarter of this year has taken total growth for the year to around 3%. Properties in this price bracket are now worth more than 4% more than a year ago, according to the report. Mr Munro went on to explain that properties valued at less than £1 million are in especial demand, and benefit from the fact that buyers with a high net worth have set their sights slightly lower, thus creating greater competition amongst buyers at closing dates.

According to the latest figures from the UK Land Registry, property prices in England and Wales fell in May by 0.2%, which represents the first monthly fall in property prices since April of last year. The biggest falls were seen in Wales, with property prices in both Denbighshire and Blaenau Gwent seeing prices fall by 3.6%. This was followed by price falls of 1.2% in Bedford and North Tyneside, with Sheffield seeing a fall of 1%.

In overall terms, the price of the average property has fallen from £165,596 to £165,314, although the picture is variable across the country generally, with prices in London and the South East continuing their upward trend. The rises stood at 0.9% in the south east and 0.7% in London. London’s 0.7% month change represents the third monthly house price rise in a row for the capital, with the average property price in London now standing at £338,708 and commercial property also seeing a boost within the city.

In terms of Year-on-Year figures, all regions experienced increases in average property values, with London prices rising by 14.2%, the south east rising by 11.3% and the south west climbing by 10.7%. By contrast, prices rose by only 1.8% in the north east, with a 3.1% rise being recorded in the east midlands. Average monthly property transactions have risen to 50,658 during the four months from December 2009 to March 2010 from 32,009 over the same period for the previous year, according to the figures. The monthly fall appears to indicate a slowing in the  recovery of the property market, with the most recent figures from the property consultancy Hometrack showing that June saw a rise in prices of just 1%. Because of this interest by overseas investors has also renewed – good news for receiving foreign capital to help bolster the market.

The housing market has been hit by a slow start to 2010, thanks to the end of the stamp duty holiday, as well as the severe winter weather seen during January and February particularly as well as the uncertainty posed by the run-up to May’s general election. The market has, however, not recovered its momentum after these factors have receded, causing economists to speculate that perhaps the recovery’s momentum may have been stymied.

According to a new report, there have been a substantial increase in the number of properties being put on the open market valued at £1.5 million and above. The report says that this is especially the case in southern regions of the UK, which have seen a 66% climb year-on-year.

The report from The Buying Solution, entitled ‘The country property, land and estate market report’ points out that there still exists a dearth of what it refers to as ‘best in class’ properties available, and there also exists evidence of top-end properties being traded off-market and above guide prices in combination with big demand for land from a wide range of buyers. The report also indicates that prices have also climbed significantly during the last quarter.

‘The post election rush and more certainty in our economic circumstances have encouraged vendors, general purchasers, new buyers and overseas investors alike. That said, as always, there is still a lack of best in class properties available across the board. Such properties are attracting competition and in some cases, selling above guide price and there is still evidence prime properties are trading off-market at high prices,’ according to Philip Selway, Managing Partner of The Buying Solution, which is an independent buying consultancy of Knight Frank.

The Home Counties have seen a distinct lack of stock, although more stock has been available privately, according to Paul Frost, who is a buying consultant for the region.  ‘The most active buyers are those making necessity purchases as they need to move for schooling, for example, and demand remains strong across all prime areas in our region,’ Mr Frost explained.

In Beaconsfield, Weybridge, Esher, Virginia Water, Henley, villages around Guildford and in the Petworth and Midhurst triangle, the prime range properties are fething guide prices-and higher. This was recently illustrated by the fact that a house in Wonersh Park, near Guildford attracted bidding beyond its guide price of £2.75 million before it had even been formally marketed. Mr Frost is convinced that this proves that good houses will never fail to sell strongly. In Hampshire, Wiltshire, West Berkshire and Somerset, however, there still exists a supply shortage.

‘A flurry of good quality houses were released onto the market after the election with reasonable guide prices being achieved. This has quickly reverted and we anticipate a shortage of supply as we head into July and August, the traditionally quiet summer period, although we anticipate the private market will continue to operate through this period,’ according to Bobby Hall, Partner and head of the Southern region.

With the new budgeting and finances set for the coming year many experts in the real estate industry and paying heed to the recent change in Capital Gains Taxes that are affecting the market. Having been set at a standard 18% in the past for all gains on sales the new rate would venture upwards of 28% for the highest gains in money through the successful sale of a property – meaning substantial losses for many of those caught in the set gain field that would fetch such a high price.

The result of this gain is expected to take its toll on the property market throughout the country in a number of different ways. For one, working with the continued low mortgage rates offered by lending institutions, this is expected to see more and more properties placed onto the market before prices appreciate too much into a realm where their sale would mean an overall loss in earnings – something that will help drive down the cost of homes on the market due to a higher saturation of properties available for purchase. This in turn is also expected to stimulate a stronger market for first-time buyers looking to make a purchase outright that may have felt hampered in the past due to exorbitant prices in desired purchase locations simple due to the fact that these individuals will have a greater selection of various priced places to choose from.

This may have a negative impact for some people seeking re-mortgages, however, as lower valued homes tend to drive down the overall value of a re-mortgage taken out and home owners may be tempted to avoid this form of financing in months to come. Indeed, recent figures do in fact show an overall decrease in the number of re-mortgages being approved on the market today, with lending institutions favoring first-time loans over any other offered to date in the past few months.