The volatility of UK house prices always makes it difficult to predict house prices. But, there are signs that we will be seeing moderate house price falls in 2011.

Affordability and house price to income ratios still remain quite high. With the prospect of wage freezes, job losses and higher interest rates, demand for housing is likely to remain muted.

More on affordability of houses

View:

• Updates on Housing Market at Housing Market.org.uk

However, away from macro-economic factors, there are also several factors which will determine the final selling price of your home.

Firstly, even within a city, location can have a significant impact. For example, any home within the catchment area of a good school, is likely to have a significant premium (think about cost of private education fees saved) If you are not going to be taking advantage of particular state school, there is not much point paying the premium.

Time Willing to Take to Sell.

This is a tricky one and requires a good understanding of local housing market. If you are desperate for quick sale, you will need to offer discount or be willing to take even ‘cheeky offers’. However, if you are keen to stay put at a strict minimum, you may have to wait much longer. Waiting for a fair offer is a good idea. But, there is a fine line between getting good price and stubbornly holding out for price above local market conditions. This is especially a factor when house prices are falling.

Attention to Detail.

Within your house, certain factors can add significantly to the final selling price. If you can make the home look irrestibly attractive, you have a much better chance of securing a higher selling price. Think about:

• New Bathroom
• New Kitchen
• Lack of Clutter
• Appealing light, well painted.
• Smart Appearance from outside
• Look of your Neighbours. Do they look like quiet law abiding citizens or do they leave rubbish in front lawn?

Be careful what you wish to spend your money on. Some extensions will cost more than they can increase the value of your selling price. However, simple things like tidying up, getting rid of junk, repainting in pleasing, welcoming colours will help you get a better price, and is definitely worth doing.

See also

• Guide to selling houses in UK
• Incentives for selling house
• Marketing house with good photos

Difficulties of Housing Market in 2011

Economic recovery from deepest recession since 1930s is slow. With prospect of higher taxes, lower government spending and inflation, households are tightenening their belts and holding off big purchases such as buying a house.

Banks Struggling from Effect of Credit Crunch. Banks are still reluctant to lend because of liquidity shortages and low confidence. The mortgage market is much stricter with homeowners facing the necessity of raising a larger deposit on buying their house.

High Unemployment. UK unemployment continues to remain at other 2.5 million reducing demand for buying houses.

Prospect of Higher Interest Rates. Despite, slow economic growth, inflation remains stubbornly high, pushed higher by rising energy prices and transport costs. This raises possibility of raising bank rates before the economy can really absorb it. Rising interest rates from 0% to 5% could come as quite a shock to many households with mortgages, especially those on tracker mortgages who have benefitted from very low rates.

See also: Housing Market in 2011

This graph shows house prices in the UK since 1952, when the Nationwide building society started keeping records. House prices were a mere £1,891 in 1952. By 2007, they had climbed to just under £185,000.

If house prices had kept inline with inflation then a house should be worth £43,701.01 This reflects how mortgages have become more accommodating. Also, parents have used their wealth to help children get a deposit and bigger mortgage

Within this trend for higher higher house prices – two slumps stand out in the late 80s to early 90s and at the end of the 2000s. However, house prices have continued to rise faster than inflation.

• House price statistics

A video on looking at the problems of the UK Housing Market.

Why House prices are falling.

Why is it difficult to deal with falling house prices.

The decline in house prices is linked to the shortage of credit in the mortgage markets, but, also reflects a fundamental long term misalignment of house value. House prices have risen faster than earnings as people have struggled to get on the property market.

House values depend upon.

Location. regional variations in house prices are significant even in a city

Supply compared to number of households. This is a problem for the UK, demographics have been increasing the number of households faster than the supply.

Economy. In a recession, demand for buying a house drops off  as people look to rent. Unemployment also increases the number of repossessions leading to lower prices

Affordability. In long term, house values need to be affordable. A traditional lending requirement was 3 times income. though this has often been stretched.

Mortgage availability. The lack of mortgages in 2008 caused prices to fall.

The main reasons behind the housing slump include;

1. Freezing up of mortgage sector. Banks saddled with bad detbs are unwilling to lend to first time buyers.
2. Fears over negative equity. Falling house prices mean banks are unwilling to lend mortgages without big deposit. Consumers are unwilling to buy with prospective of falling price.
3. Overvalued house prices. Prices rose faster than incomes stretching affordable.

How Much Will House Prices Fall?

Whilst the credit crunch lasts, mortgage availability will be limited. This will keep demand very low. Some predict credit crunch could last until 2011 and there is little the government can do about it.

Possibility of recession or severe slowdown means rising unemployment and depressed real wages. Combined with rising costs of living, this will depress demand.

However, as prices fall, buying will become relatively more attractive than renting. Combined with constrained long term supply, there is prospects of house prices regaining their upward trend in 1-2 years when the worst of the credit crisis is over.

The drop in house prices is not the biggest fall since the Great Depression, and in some cities it is even worse.

Despite interest rates of 2%, the demand for houses has dried up due to:

• rising unemployment
• Falling availability of mortgages
• Tighter credit criteria

More on Falling US House Prices

For example, if you buy a house for £249,000 the stamp duty is £2,490

However, if you buy a house for £250,000 the stamp duty rises to £7,500 or 3%

Clearly, if you are considering buying a house just above the threshold level, it makes sense to try and barter the price down and compensate the seller through other means.

For example, you might be able to get away with purchasing the furniture as a separate deal. Alternatively you could pay them just under the threshold and give them gifts in kind such as white goods to make up the loss.

Stamp Duty Thresholds 

Stamp Duty Calculator