Was the recent increase in house prices a false dawn?

Last year’s recovery in the UK property market was unexpected and not predicted by many analysts, however experts forecast that the brief surge experienced towards the end of last year may be coming to an end and could be replaced by a decade of stagnation.

After house prices fell in the beginning of 2010 and the number of approved mortgages decreased as well, many are predicting that prices will fall this year and the next. By 2012 houses might only cost approximately 3% more than today and this indicates that there could be a number of years of idling prices.

It has been argued that a large proportion of the increase in prices late last year was concentrated in the South of England and in particular around London. Overseas buyers have been taking advantage of cheap property and stimulated a mini recovery in those areas. However, areas of Northern England saw no increase in prices causing some of the figures to be misleading.

Since the crash in 2007, a number of mortgage holders have been left in deep trouble and it is estimated that over 1 million houses are experiencing negative equity. Similarly, a further 1 million people are currently unable to afford buying a property because they do not have the 15% of equity required to enter a transaction in the current tough mortgage market.

It is not surprising that many are forecasting the market to slow down again after the brief recovery because firstly it was not expected and undoubtedly the housing market will take a long time to recover after the worst recession to hit the UK since World War II. Other factors are also playing some havoc with the market during 2010 and it is yet to be seen how they will impact prices. Spring is traditionally a period when most activity takes place on the property market but the outcome of the General Election and policy announcements could affect this in many ways.