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House prices reaching tipping point

Tuesday, 14 November 2006 12:00 AM

House prices are reaching a tipping point and could go into a severe downturn, a leading property website has predicted off the back of its latest asking price index.

Home.co.uk's forward-looking price survey shows asking prices in England and Wales went up 1.3 per cent this month, a rise for the third month running.

However, the website predicts this buoyant seller confidence combined with rising interest rates may cause the market to wobble, driving it towards a tipping point.

"Since 2004 we had observed a slow, downward trend in house prices - it looked as though the affordability gap for first-time buyers was closing as the 'froth' melted away.

"Over the last six months, the opposite trend has emerged. With sellers' confidence in the market on the rise and increasing interest rates, the affordability gap for first-time buyers is rapidly widening," said Home.co.uk director Doug Shephard.

Home.co.uk point to severe downturns in the Australian, Japanese and US markets that stemmed from "inflation fighting, interest rate hikes".

"Hyper-inflated markets do not like even the smallest whiff of such uncertainty and can self-destruct," Home.co.uk warned, adding Japan's house price crash of 15 years ago serves as a model for the current UK property market.

"Japan suffered one of the biggest, and best documented, property market collapses of modern time. At the market's peak in 1991 all the land in Japan was worth about £10 trillion, almost four times the value of all US property at that time.

"The property crash came after the Japanese central bank finally moved to raise interest rates. House prices plunged into a fourteen-year slump, from which they have only recently started to recover," the website said.

Home.co.uk advised UK homebuyers to avoid getting tempted by "over-heated" property prices and ending up borrow beyond their means by taking on extended lending multiples, interest-only and 125 per cent mortgages.

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