House prices rose slightly in May, according to the latest index from Nationwide – indicating that the property market may have bottomed-out. In particular, there are growing indications of higher demand for prime properties in London.
Slight rise
House prices rose 1.2% in May, the Nationwide's figures show. Average house prices rose from £151,861 in April to £154,016 a month later. This is the second time in three months that house prices have increased, according to Nationwide's index.
But Nationwide warns not to read too much into two months' figures after the steep falls over the last 18 months. Rising prices may reflect supply shortages, with homeowners pessimistic about achieving acceptable prices if they try to sell.
Still 11% down
Martin Gahbauer, Nationwide's chief economist, says: "At £154,016 the average house price is still 11.3% lower than a year ago, although this marks a significant improvement from the annual decline of 15% recorded in April."
He adds: "Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitively.
"During the downturn of the early 1990s, there were many months during which prices rose, only to fall back down again in subsequent periods."
Weak lending
The market is clearly damaged by continuing problems with home loan availability. Mortgage lending fell in April to its lowest level for eight years, the British Bankers' Association reports.
This is mostly because of the decline in remortgaging. David Dooks, statistics director of the BBA, says:
"The house purchase part of the mortgage market appears to have stabilised, with slightly more approvals coming through, although April's weak net mortgage lending reflects the lower number of approvals in previous months."
Mortgage approvals up
The Royal Institution of Chartered Surveyors welcomed the increase in approvals. Its senior economist Brigid O'Leary says:
"The rise in mortgage approvals for new house purchases in April reverses some of March's fall. However mortgage lending continues to be stuck at very low levels.
"As yet, there are few signs that the massive stimulus from the Bank of England is having a marked effect on mortgage lending, and the increase in new buyer enquiries, as reported in the RICS housing market survey, is clearly still being stifled by restricted lending conditions.
"An increase in mortgage approvals will be vital to lift the housing market out of its depressed state," adds O'Leary.
Prime London leading way
There are clearer signs of recovery in the prime London market. The latest Knight Frank London Residential Review reports a big reduction in the rate of price decline in the first four months of the year, followed by a slight house price increase in April.
More properties are now available for rental, reducing the supply of homes for sale and stabilising house prices, while pushing down rents. In Central London, reports Knight Frank, there has been a 50% to 100% increase in properties available for rental.
Cash to invest
Peter Rollings of Marsh & Parsons is confident that the prime London market has rebounded. While there remain problems of a lack of mortgage finance "there are a lot of people who do have cash to invest and they're throwing it into property right, left and centre," he says.
"The London property market is bursting with good quality buyers, keen to take advantage at knock-down prices," adds Rollings.
Even in spite of the lack of mortgage finance available, there's stiff competition for the best properties. However due to a chronic shortage of stock on the market, the days of gazumping seem to be back, and more and more properties are going to sealed bids. Anyone who thinks they can bid way below a sensible asking price is dreaming."
Marsh & Parsons reports "a huge rise in cash buyers". It says that many buyers now see prime properties as offering a surer investment return than equities.
M&P adds that there has been particular interest in Kensington & Chelsea following sharp falls in prime property prices, with a big increase in foreign buyers, especially from Italy.
Negative sentiment
There remain fears, though, that with unemployment predicted to rise heavily in coming months, most of the property market could fall further this year.
Jones Lang LaSalle predicts that average UK house prices will drop by a further 12% to 14% this year and another 1% to 3% next year. But it also agrees that London is in the strongest position.
James Thomas, head its residential investment team, says: "The forecast predicts that London will lead the housing market recovery, seeing positive house price growth in the autumn of 2010 and will experience the strongest house price recovery during 2011/2012, in part due to the boost the capital will get from hosting the Olympic Games."
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The London property market is bursting with good quality buyers, keen to take advantage at knock-down prices
