After many years of a bullish market, two years ago certain UK newspapers were full of dire predictions that the housing market was totally overvalued, property was no longer affordable, and that prices were going to crash by perhaps 20 per cent over the next few years.

Shortly after, the Governor of the Bank of England also expressed some concerns although these were certainly more muted.

Therefore it is perhaps no wonder that buyers stepped back and waited to see whether the doom and gloom merchants were going to be proved right. In addition a number of “amateur” investors who had moved into the buy-to-let market in unprecedented numbers also decided to cash in their profit fearing a drop in their investment value.

As a result the following year, 2005, certainly saw a much slower market with UK housing completions at their lowest for many years. Asking prices saw a downward adjustment but not the crash that some predicted.

In August 2005 interest rates were reduced and confidence quickly flooded back to the market. Against the norm, the whole winter period showed increased levels of activity and it did not take long for reports to come in of increasing prices led by London and the South East.

So why no crash? All agreed that purchasers had to borrow ever increasing amounts and certainly the ratio of income to house prices was back up to the level that preceded the last major downtown in the market. However, there were some significant differences, much lower inflation, lower unemployment and an interest rate that was still historically low compared with the 15 per cent that was seen prior to the last crash.

Loans may be at far higher multiples of income, but for many still very affordable compared with a few years ago.

2006 has therefore, in the main been a very strong year with good levels of sales. In many areas, despite the recent rises in interest rates which perhaps gave a slight respite, a shortage in the supply of second hand homes compounded by too few new homes being built in the right location has fuelled prices.

The average asking price (November 2006) according to members of the National Association of Estate Agents now stands at £226,000 and this is matched by the figure quoted by RightMove. However, the average sale price, according to the UK Land Registry is £185,000. The difference being accounted for in by the fact that the Land Registry data, whilst accurate, is some months old, reflecting historical sales and the fact that asking prices are, in any case, usually going to be slightly higher than sale figures.

The media has recently been full of stories about the strong property market stating that asking prices have gone up over 12 per cent during the past 12 moths. However, this is masking the fact that not all areas have shown this increase. Much of the rise is accounted for by well above average rises in Greater London (18 per cent), The South East (16 per cent), The South West (17 per cent) and East Anglia (14 per cent). These are balanced by the Midlands and Yorkshire at about 9 per cent, the North West and Wales - 5 per cent and the North - 3 per cent (all percentage based on asking prices from RightMove).

Perhaps the real situation can therefore be described as varying and certainly nobody should assume that all areas of the UK are the same. Indeed, even within an area there can be big differences in demand between one town and another. It can neither be assumed that all types of property are equally popular or have shown the same level of price rise. An example of this is the difference, in demand, between houses and flats with the latter market showing an oversupply in some cities and towns, which has resulted in little increase in price this year.

Clearly the London market has dominated 2006 and this applied across most types or properties and areas. The upper end of the market has shown spectacular growth with some agents reporting a 50 per cent price rise in the Kensington and Chelsea area, with Westminster running a close second and many other areas reporting rises around 20 per cent.

Buyers continue to express considerable interest at the top end of the market with agents reporting strong interest from many parts of the globe. This interest also includes the country house market with land in itself showing strong growth. This is also reflected in recent evidence of rising agricultural land prices.

First time buyers do, of course, continue to have a very tough time with many areas of the country rapidly becoming, in effect, no go areas for them. Some 20 to 30 years ago agents would have expected perhaps between 25 and 30 per cent of sales to come from this market. Currently first time buyers account for below 10 per cent according to members of the National Association of Estate Agents.

So where does the market go from here? The recent rises of two lots of quarter per cent interest rate rises appear to have taken some of the heat out of the market especially away from the South East, with agents in many cities and towns confirming a reduced level of interest. This has already resulted in more realistic asking prices being required.

Economists appear divided on which way interest rates will now go, with some considering there will be a further small rise, balanced by those who believe the next movement will be down but perhaps not for some time.

In addition we do not know what impact the introduction of compulsory Home Information Packs will have in June 07. There is certainly the possibility that there could be an effect on supply which can only help to fuel house price inflation.

At the end of the day, the UK is facing continued pressure from a net increase in population for the foreseeable future and an undersupply of new houses being built. The Government have stated that some 200,000 new homes are required each year. The current rate is approximately 125,000. In addition, lenders appear to continue to be happy to provide large mortgages and providing interest rates to not continue to rise, mortgages remain affordable for the majority.

However in 2007 it is unlikely that we are going to see the same level of rises seen in 2006. The market is steadying and overall I believe that we will see rises in the order of 5 per cent. There will of course be anomalies to this and it is likely that many parts of the London market will remain strong especially if one considers the impact of large numbers of £1million and more city bonuses.

Overseas, UK residents continue to show a high level of interest in homes whether this is for retirement, investment or holiday purposes. The old haunts of France, Spain, Portugal, Italy and Florida remain popular especially with the slower US market and the weaker US dollar. However, many new areas are emerging and the NAEA is concerned that in many cases proper advice is not being obtained prior to jumping into a purchase. “Tread carefully” has go to be the watch phrase and take advice from those who really know what they are talking about.

Biography

Peter Bolton King is the Chief Executive of National Association Estate Agents. He started work in 1973 with a leading Warwickshire firm of chartered surveyors and estate agents, Locke & England. After working in different departments he qualified as a Chartered Surveyor and became the firm’s youngest ever partner. In 1987 the business was sold to Lloyds Bank and Peter Bolton King became an area director. More recently, the firm became part of Bradford and Bingley and he became area sales director for the largest region in the country. In July 2003, Mr Bolton King became Chief Executive of the National Association of Estate Agents, the largest professional body for estate agents with a membership in excess of 10,000 (www.naea. .uk).

Currently representing the NAEA on various Government committees relating to the proposed Home Information Packs and related matters, he also holds a number of other Industry Board appointments of behalf of the Association. These include FIABCI, Asset Skills and the Ombudsman for Estate Agents (OEA) Board and Council.

Peter Bolton King is passionate about raising standards in the industry and also raising customer awareness of the benefits of the Association. He continues to lobby Government for licensing in the industry.