The prices and values of prime, central London properties continued their recent run of increases throughout January, although the latest rise was less marked than of late according to the latest property index for London’s property market. The figures show that prices rose by 1.1% during January, marking the tenth month of consecutive growth despite being the slowest growth rate since August of last year, as well as being significantly down on Decembers rise of 2.1%. The figure are courtesy of Knight Frank’s Prime Central London Residential Index. When taken on the basis of annual analysis, price growth for the prime residential housing market in London now stands at 11.5%, currently 15% above the trough period experienced by the market during last March, yet still 12% below the market’s high point reached in March 2008.

The most aggressive price growth has been seen at the very apex of the market in the property sector boasting prices standing at £10 million and over. This sector of the market experienced 1.% growth during January, which continues the good recovery of this sector of the residential property market in the UK. Indeed, industry analysts comment on the turnaround in just a shade over a year from practically market meltdown in the sector to price growth comparable to boom-time rates. Comment has also been made regarding the combination of factors since April 2009, such as the historically low level of interest rates, the injection of government stimulus packages as well as the rising confidence of buyers regarding both their own personal financial circumstances and with the wider economy have combined to nudge prices higher and higher.

It is felt that the market still has decent scope for continued recovery-at least going into Spring. Also, despite the fact that house buyers have returned to the market in droves thanks to continuing offerings of both fixed rate mortgages and even re-mortgage rates that are taking advantage of the historically low interest rate to get the best mortgage deals in some time sellers are fairly thin on the ground, and these factors combine to contribute to a real supply and demand imbalance. London properties have seen an increase in demand in almost every price bracket-with the £2 million to £5 million price bracket (the so-called ‘City’ segment) seeing the greatest demand. The figures in the latest report revealed that January’s applicant volumes for properties in January stood 15% higher than the five year average.

Analysts at Knight Frank have also revealed that their stock levels are around 15-20% below usual levels for the time of year, with some offices experiencing fall of as much has 30% or more. Analysts state that a lack of stock can be a perpetuating vicious cycle, as prospective sellers hold off until they have a wider range of options for their onward move before they finalise plans to sell their property. The problems and controversies surrounding City bonus payments has also contributed to delays, as has increased price expectation among sellers due to market conditions.

The latest published index listing UK residential property prices has revealed that house prices have rose in January, marking a seventh consecutive monthly rise, with an increase of 0.6%. The index also indicated that the outlook for residential house prices in 2010 was likely to be somewhat flat. The index, published by UK mortgage lender, Halifax, stated that house prices have risen by 9.9% following the market trough experienced in April 2009, and are up 3.6% as compared to the same period last year.

The figures also indicate, however, that house price rises are slowing, due to the fact that the rise seen in January was not as marked as the rises seen during the previous half year. Also, the fact that more properties are now entering the market is likely to keep prices flat, as previous price rises have been driven principally by a lack of stock and supply. Many analysts believe that the continued increase in supply over the coming months will serve as a check on the kinds of previous price rises that have surprised many commentators over the last couple of years-and particularly during the worst periods of the global recession.

The Bank of England has also decided to pause the recent policy of quantitative easing on February 4th, as well as to keep interest rates at the historically low level of 0.5%, which many believe will keep rates low until the latter part of the year and help provide borrowers with affordable interest rates for mortgage deals, particularly for fixed-rate mortgages as well as any re-mortgages people may be looking into in order to help clean up any residual debt from the recession. Such factors have, many believe, boosted demand for housing from buyers able to afford rising deposits. Most analysts also agree that the growth of housing prices will also be much quieter, due to prevailing and expected economic conditions. Among the key factors that will contribute to the change in the upward trend of UK house prices are likely to be unfolding patterns of unemployment, changes in earnings as well as what will happen to interest rates. According to Global Insight’s Howard Archer, house prices will be flat for the remainder of 2010. Previous levels of growth saw average house prices standing at just over £154,000 in April 2009 as compared to almost £170,000 currently.

The  prices and overall value of development land for residential housing in the UK rose for the third consecutive quarter during the final three months of 2009, but levels are still some way below the values seen at the peak of the market. A new report from Knight Frank has illustrated that the value of urban land in the UK climbed by 2.1%, standing now 6.1% higher than the trough levels seen during the first quarter of last year. The values of greenfield land went up by 4.%, currently standing 8% higher than their trough point seen during the same period.

In spite of these recent strong growth figures, the values of urban land still stand 51% under the peak levels seen during the final quarter of 2007, with greenfield values currently standing 39% below their peak market levels. As with many of the housing figures of late, the revival in the latest figures has been spearheaded by London in general, and by London’s prime locations in particular, for example, Westminster and Kensington and Chelsea, all of which saw land values climb 7% during the final quarter of last year. Knight Frank’s head of residential research, Liam Bailey, reflected that the powerful performance seen by development land is indicative and symbolic of the more general residential housing market seen throughout last year.

The wider housing market has seen UK house prices rebounding by 6% over the year, as well as seeing sales volumes recover by a whopping 75% Y-O-Y throughout last December. Development economies have also witnessed significant improvements, and house-builders and developers have been considering the prospect of more new-build starts. Mr Bailey explained that new-starts climbed during the course of 2009, and by the end of the year stood at a full quarter over the level seen for the same periods during the previous year.

He cautioned, however, that whilst there has been greater activity in the development sector, the supply of land in the market remains incredibly scarce, and any land being introduced to the market is priced too highly by over-ambitious sellers. This results in sellers pricing themselves out-despite rising land values. The market outside of London and the south east is even more curtailed, with buyers being mostly unable to make offers with up-from lumps sums dwindling, leaving the market to a few cash-rich buyers as top rate mortgages for first time buyers or other domestic or overseas buyers become harder to come by. Analysts forecast that 2010 looks like seeing continued growth in development and land pricing, despite this growth likely to stay at single digit growth for the year.

A recent report by a property intelligence group has warned that current residential property prices in the UK are slowing in respect of increases and that the overall general healthy and viability of the market has been largely overstated. According to the latest index produced by Hometrack, residential house prices rose by 0.1% throughout January, indicating that the residential housing marker is beginning to show signs of deceleration. The index also indicated that in average terms, properties are generally taking longer to sell now, with the average time increasing from 8.3 weeks in December 2009 to 8.6 weeks in January.

The same index also illustrated that the number of new house buyers has fallen, as well as the number of new sellers coming to the market in both England and Wales throughout January. There was also a fall in the number of agreed sales during the same period.

These new figures are in sharp contrast to those released last week by the Nationwide Building Society, whose report illustrated that, on average, UK-wide house prices rose by 1.2% throughout January.

The new figures from Hometrack do appear to raise several very pertinent issues relating to the residential property market in the UK. Among them is the fact that house prices are rising in only 7.6% of postcode areas located specifically in southern England, thereby exacerbating and widening exisitng regional divides. In actual fact, the only regions to see house price increase during January were Greater London, the South East and the South West. Residential property prices remained static in other areas throughout the same period. The report also warned that the overall residential property market was being dominated by those buyers that were either mortgage-free, or owed minimal amounts on their home loans as opposed to those seeking to get in on the best mortgage rates they can while the market is still adjusting, either with fixed rate mortgages or through utilizing a re-mortgage for a further home purchase. When connected to the low number of overall transactions, the concern is that such factors could distort the impression given by the wider market. In simple terms, in means that transaction figures have been tilted erroneously by higher value properties in more affluent areas, leading to the  overall health of the residential property market being grossly overestimated-especially with the economy only just inching out of recession. Analysts believe that the outlook for 2010 is somewhat uncertain, with a shortage of properties registered for sale acting to support price rises. How this continues to pan out is likely to indicate the short to mid-term market conditions.

The Centre for Economics and Business Research, an independent business advice consultancy, has predicted that the UK’s residential property prices will go up by perhaps more than 6% during the coming year, and will, by the end of 2013, stand at around 20% higher than current levels. This is currently the brightest forecast for the residential housing market in the UK to date, with initial forecasts having been raised up as a result of an improved outlook as far as lending is concerned, as well as the continuing low interest rates contributing to some of the best mortgage rates to be found in years. The forecast is also due to an improved outlook for mortgage lending-this having been underscored by an expected rise in mortgage approval for all types of mortgages, even re-mortgages and bad credit mortgages, which are forecast to top 72,000 per month by the end of the year, up from the current level of around 60,000 per month.

The report also predicts that this figure will rise to approximately 90,000 per month by 2013. Analysts expect that this continued rise will result in a path of sustainable growth for house prices in the mid-term, despite the fact that the forecast figures are still a good deal down on mortgage lending levels pre-recession. CEBR also predict that interest rates will remain static at 0.5% probably until the middle or end of 2011. Their report also indicates that the house prices growth rate may well even out during the coming year, although house prices should still end the year 6% higher than they started it and that house price growth will slow throughout 2011 as a result of the knock-on economic effects of public sector cutbacks which will likely also result in higher levels of unemployment.

Further to this, due to the fact that there is a current lack of new house-building projects, supply-side issues will remain, with analysts expecting growth to continue as a result, forecast at 8% in 2012 and perhaps another 4% in 2013. In general, analysts and experts agree that the rise in house prices of almost 10% since the bottom of the current cycle may have been a little surprising, however, factors such as a doubling in the rate of mortgage lending during the same period, the shortage of new properties coming onto the market as well as continued low interest rates and lower-than-expected levels of unemployment have all contributed to pushing the rapid house price rises. This is expected to level out as government austerity measures are implemented.

The latest price index shows that although residential property prices have started 2010 strongly, continued uncertainty regarding rising inflation could lead to interest rates going up somewhat sooner than than previously anticipated, as Nationwide’s January House Price Index spells out. The figures show that residential property prices rose by 1.2% throughout January this year, which marks a year-on-year rise of 8.6%. The three month- on- three month change rate, which usually provides a somewhat better indication of the very latest trends, fell a little from Decembers level of 2.3% to January’s 2.1%, potentially spelling an end to what many people have viewed to be some of the best mortgage rates in years.

These figures, however, generally reflect the smaller increases in prices seen during November and December. Annual hose price inflation may well rise to double-digits in February in the event that property values do not fall during the month. It would be the first time that such levels had been reached since May 2007, if it happens. December 2009 saw a cluster of important economic indicators that will have a definite impact on the housing market in the UK. Firstly, Britain’s economy just about came out of recession in the final quarter of 2009, and secondly, unemployment figures went down.

There seems little doubt among analysts that, although the first economic growth estimates may be revised upwards, the housing market has rebounded well,-and has gone well beyond the recovery of the wider economy in the UK, marking an opposite trend to that witnessed in 2007/08 during which the housing market fell away much more rapidly-as well as earlier-than the general economy. There is also concern that, although the number of unemployed dropped in November-the first such drop since February 2008-and that December saw the second fall in a row in the number of people claiming unemployment benefits-analysts agree that these figures hide certain other adjustments occurring within the labour market-especially related to average pay. The growth of average earnings now stands at the lowest point ever, due to the fact that the majority of employers and companies implementing cost cutting measures widely throughout their workforces by either reducing or freezing pay.

Such pay inflation has implications for house prices and in turn what options might be available for fixed-rate, flexible, and bad credit mortgages, as pay inflation is now close to zero, any extra increase in house prices decreases housing affordability, especially as interest rates seem as though they will not fall further. This would negate further growth in the housing recovery and that seen in house prices, whereas the restraint of pay has also resulted in more people keeping their jobs rather than being made redundant, meaning that they can continue to pay their mortgages at the current low interest rate. What happens to interest rates in the near future remains vital for the housing market, and will be watched closely by analysts and housebuyers and homeowners alike.