Property prices - going up or down?

Posted in 'Mortgages' by Barry Stamp

26 June 2012

Two very conflicting views on the direction of the property market have been published almost simultaneously by two bank analysts.

First, BNP Paribas Real Estate says in its summer review published on 22 June, that the “ongoing housing supply shortage will drive rental growth in core city locations, underpinning house prices and preventing decline as the UK economy struggles to return to form.“

“Nonetheless”, it continues, “the increase in UK average house prices will be fairly muted in the near term, but a recovery in the economic backdrop and employment market should be sufficiently healthy to produce more robust growth throughout the rest of the period. We are forecasting average annual growth of 6% p.a. over the next 5 years.”

As always with property prices, location and regional variations are key issues, and BNP Paribas says that, “The North/South divide will broaden, and the southern regions will continue to outperform the rest of the UK, particularly in London and the South East where the economic outlook is stronger even in the near term.”

Compare and contrast that bullish BNP Paribas outlook with the view of Henry Lancaster, a Senior Investment Analyst at Coutts, reported by Ian Cowie in the Daily Telegraph on the same day, under the heading “House prices could fall by 11pc, predicts Coutts” .

He reports that Mr Lancaster’s view is based on the current recession, levels of unemployment, GDP and current house price levels, “….UK residential property appears unattractive as an investment. Prices appear to have been bid up by investors seeking ‘safe havens’ to preserve their wealth given record low interest rates. However, the UK residential property market is far from risk-free.”

So are we in for 6% growth per annum for the next 5 years, a la BNP Paribas, or for a 11% market correction, argued by Henry Lancaster at Coutts?

Your guess is as good as mine. I’m just sitting tight for now.

Barry Stamp is a co-founder of Checkmyfile and is a Chartered Banker and a Fellow of the Institute of Credit Management. He can be contacted at barry.stamp@checkmyfile.com.