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UK property prices will fall next year but long term outlook is upwards

But the long term prospects for the market are excellent with experts believing that the UK market could see prices surge by almost 30% by 2015.

One of the main reasons that prices will dip in 2010 is that cash rich buyers who have driven the price increases will fade away and stock shortages will ease.

‘It is the imbalance between low supply and cash driven demand that has driven prices upwards,’ explained Yolande Barnes, head of residential research at Savills.

Over the course of 2010 Savills forecasts for both the prime and mainstream markets indicates that as cash buyers are satisfied and shortages decline there could be a brief period of headline grabbing price falls of up to 6.6% around the middle of the year and then modest growth of around 2.7% in 2011.

It predicts that the average UK house price will rise by 27% between 2012 and 2015, over 7.5% higher than at the peak of the market towards the end of 2007.

While prime central London price growth is expected to be around 18% over the next three years and 35% over the next five years with equivalent figures of 14% and 30% in the prime regional and country house markets.

‘In the short term we are facing events with the potential capacity to discourage house purchases.

The uncertainty preceding an election, the prospect of public spending cuts, higher taxes, continuing mortgage rationing, further unemployment, possible stock market correction, inflation or future interest rate rises, all have the potential to impact the mainstream, even if the precise timing of such impacts is difficult to pinpoint,’ explained Lucian Cook, director, residential research at Savills.

However, any price falls in the coming year will be contained by the relative affordability of housing which is firmly underpinned by the current low mortgage interest rates, he added.

Property consultants Cluttons forecast also indicates a step backward in 2010 followed by price increases in the long run.

Overall is predicts that prices will increase by up to 2% in 2010 in a best case scenario but in the worst case could fall up to 5% depending on the performance of the economy.

Central London prices are expected to fare better, with a slow growth of up to 3% next year.
‘We expect stock to increase in 2010, but with vendors’ pricing expectations still high, this may leave optimistic buyers frustrated, especially where mortgages are a significant part of financing purchases and restrictions remain tight on mortgage loan-to-values,’ said Andrew Stanford, head of Cluttons’ residential professional division.

Prices are then expected to rise more from 2011, with the three following years seeing prices up by 3% to 4% per annum.

Also as interest rates remain low, the mortgage market will gradually recover.

Values will be attractive for foreign currency buyers in London and good for UK buyers with equity to invest, the forecast also says.