Hot property tips for 2007

The last year has seen record-breaking price rises for properties across much of the country, two interest rate rises and much talk of a housing crisis as demand outstrips supply.

But what are the experts predicting for next year? Should we be expecting house prices to go up at the same levels as this year? Will there be a house price crash? What will happen to interest rates? And where are the new overseas property hotspots for 2007?

Find out what the experts are predicting with aboutproperty.co.uk's hot property tips for 2007:

House prices
The speed of house prices rises is the most divisive issue among property experts.

For 2007 most are predicting some kind of gentle slow down in the latter half of the year, but where house price growth finishes up is more debatable, predictions varying from 4.5 to eight per cent.

The UK's house prices will go up seven per cent next year according to the Royal Institution of Chartered Surveyors (Rics), with activity to remain high and demand outstripping supply.

Rics believes a house price crash is unlikely "as factors such the economy and the strength of the job market have a far stronger short-term impact on the market, with buyer expectations taking a long-term view".

Also predicting a seven per cent rise in house prices is the Council of Mortgage Lenders (CML), who said "in the absence of major shocks, house prices are likely to rise above current levels in relation to income levels".

However, Nationwide is not prepared to be as specific, forecasting house prices rising between five and eight per cent next year, backing up Rics and CML forecasts, though the building society predicts a more changeable market in 2007.

"Momentum gathered in 2006 will flow into the early part of 2007, and this will be supported by a buoyant economy, stable interest rates and a continuing shortage of housing supply," explained Nationwide group economist Fionnuala Earley.

"We can therefore expect to see a few months of double-digit annual house price inflation in the first half of the year.

"However, increasingly poor affordability and likely cutbacks at the bank of mum and dad will cause the rate of house price growth to move back into single digits in the latter part of the year."

At the other end of the scale, mortgage advisor John Charcol is predicting much smaller price growth of 4.5 per cent, with rising interest rates easing back house price inflation as the year goes on.

Online estate agent Rightmove is similarly cautious about predicting big rises next year, expecting house prices to rise six per cent, saying "2007 is likely to see a much flatter market with growth stabilising".

In regional terms, house prices in London, the south-east, Scotland and Northern Ireland are expected to go up at above average levels, "both in 2007 and in the next five years", Rics forecasts.

Nationwide also expects above average house price inflation in London and the south-east, with price growth in the north, the Midlands and Wales staying "fairly flat".

Interest rates
Most property experts are predicting the Bank of England will raise interest rates next year, though most expect base rate to reach a maximum of 5.25 per cent.

Rics predicts there will be "another possible interest rate rise to 5.25 per cent in the coming months" and John Charcol also reports "the consensus is that Bank rate will see one further increase to 5.25 per cent and end the year there".

Rightmove goes one step further by predicting March 2007 will be the month for the widely predicted rise of 0.25 percentage points to 5.25 per cent.

First-time buyers
Property experts across the industry are predicting another tough year for first-time buyers, with affordability the key issue.

"Although changes to lenders' policies, product innovations and support from relatives will continue to help some people into home-ownership, there is a limit to how far these measures can go," the CML economists Jim Cunningham and Paul Samter commented.

According to Rics "affordability and accessibility for first-time buyers will continue to worsen in 2007" and a slowdown will not increase access for first-time buyers as prices will still rise faster than incomes.

New homes builder Linden Homes said: "there will be no let up for first-time buyers, who will continue to struggle to buy a property, despite the expansion of the government's shared ownership scheme."

The house builder adds first-time buyers will be reliant on "deals from developers to ease the cost of buying and assistance with stamp duty and legal fee payments, as well as financial help with deposit payments from parents".

New Homes
Linden Homes predicts prices of new homes rising two to three per cent next year, with Bristol and Southampton the regional hot spots to watch next year.

"Energy-efficient house building will undoubtedly be the biggest single issue for the industry in 2007, as house builders respond to government calls for 100 per cent zero carbon new homes in ten years' time.

"This timescale is an enormous challenge to developers, some of which have been experimenting with individual measures to generate renewable energy on site over recent years.

"However, there is still a long way to go until the vision of every single new home in the UK being zero carbon can become a reality."

Overseas property
International property investment group Assetz predicts strong competition to the emerging destinations such as Bulgaria and Croatia from more established markets such as France, which are also "considerably lower risk" investments.

However, one top emerging destination Assetz is tipping for next year is Poland. The company notes lenders have halved the deposits required to buy homes to just 15 per cent, which has raised the potential returns dramatically.

Also in the emerging property destinations are Turkey and Cyprus.

The Cypriot property market is well positioned to perform well over the next twelve months, explained Assetz, with house price growth reaching ten per cent.

"When Cyprus adopts the Euro in 2008 it will have to decrease interest rates to the currently lower Euro rate, making borrowing cheaper, which is likely to further strengthen the property market," the company said.

Nearby Turkey is also set to emerge as a hotspot, Assetz forecasts, thanks to the introduction of mortgages in October 2006.

"Mortgage rates are quite high at 5.9 per cent, but with capital growth strong at 20 per cent and a surge in demand for property by local people pushing up prices, Turkey is making an impression on international holiday home investors," Assetz predicted.

European property investment specialists, Property Secrets' top three countries to invest in for next year also includes Poland, with Romania and the Czech Republic representing good opportunities next year.

"With VAT laws in the Czech Republic changing in January 2008, I believe that 2007 will see investors flocking to buy before the 14 per cent increase," explained Simon Tweddle, Property Secrets head of research and analysis.

"Added to this, the Czech Republic still receives good levels of foreign direct investment, has competitive finance and remains a location of choice for several blue chip companies."

Foreign direct investment also reached high levels in Poland last year, said Mr Tweddle, adding "extremely good mortgage packages" and strong demand for property making it another top place buy an overseas property.

"Romania's entry into the EU, its increasingly diverse finance options and its economic performance all point towards an extremely good investment location – we're expecting growth of 30 per cent in 2007," forecasts Mr Tweddle.

At the other end of the scale, Property Secrets is warning investors away from investment in Hungary due to "political instability and uncertain economy".

"The Hungarian economy is looking increasingly fragile due to its reliance on foreign loans which makes any pressure on the currency a threat to the mortgage markets.

"The market is currently extremely oversupplied in Budapest, so reducing potential for capital growth, which ensures a very poor rental or resale strategy for investors."

Investors are also warned properties on the Bulgarian coast are not going to perform well in 2007.

"As an investment location, Bulgaria is also one to be wary of; particularly around the coastal regions. For those interested in living in Bulgaria, it's a great place to settle, but as an investment opportunity should be kept at arms length," Mr Tweddle advised.

Property Secrets' high risk outsider tip for next year is Slovenia, thanks to "significant tax cuts, a real loosening of mortgage restrictions and. . . its imminent entry into the Eurozone".