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Written by rosalind renshaw

UK house prices will not regain their 2007 peak until 2019, making this the longest housing market recovery on record – and a further ‘correction’ in prices looks inevitable.

Knight Frank issued a new housing market forecast this morning, which also said that although housing transactions will edge up by 2% next year, sales will remain at ‘well below peak levels’ for the whole of the rest of this decade.

The firm is also forecasting that the London property price boom will end next year. It says that expected tax changes will cast a shadow on the prime central London market next year, with no price movement expected in 2013.

Gráinne Gilmore, Knight Frank’s head of UK residential research, said: “Some five years after the start of the financial crisis, the housing sector in the UK still does not bear the hallmarks of a fully functioning market.

“Transaction levels have roughly halved since the last market peak in 2007, and are 35% below the 20-year average, as first-time buyers and those further up the housing ladder struggle with tighter mortgage lending rules.

“House prices have been flat or modestly declining across the UK since 2010. This stasis is underpinned by unusual economic conditions, rather than a genuine equilibrium in the market.

“The fundamentals suggest that a further correction in prices is needed, as the relationship between average earnings and average house prices is well above the long-term average.

“We believe that the new ‘average’ at which this ratio settles in the future may be above the historical average, but there is still a further readjustment required to reach that level.”
She went on: “Prices have been supported so far by ultra-low interest rates. This has resulted in monthly mortgage payments falling for some borrowers.

“But it has not all been good news for borrowers. Those with only a small slice of equity in their property have struggled to remortgage, given that many lenders have scrapped the high loan-to-value (LTV) deals seen before the financial crisis. Instead, lenders in general now lend a maximum of 75% LTV. Only a handful of deals are available above this threshold and the most competitive deals are for those who have 30% or 40% equity. 

“Indeed, most home owners who do not have a 25% chunk of equity in their property must stay with their current lender, and are unable to reduce their monthly mortgage payments by shopping around the mortgage market for a more competitive deal.

“First-time buyers without a 25% deposit find it hard to climb on to the housing ladder at all, although some government initiatives, such as Firstbuy and NewBuy, have tried to open up the market to those with more modest deposits.

“The Bank of England and Treasury Funding for Lending scheme, designed to boost mortgage lending as well as the availability of loans to small businesses, has yet to prove that it is really having a significant effect on the market, although there are initial signs that mortgage rates may have fallen slightly.

“The recent Mortgage Market Review (MMR), which is likely to be implemented in 2014, underlines the fact that the current conditions in the mortgage market are not a post-crisis blip. Rather, this should be considered the ‘new normal’, and the housing market will certainly reflect that, taking years to reach the transaction levels seen at the peak of the market. We forecast only a 2% rise in transactions next year.”

She concluded: “We do not see average prices reaching their 2007 peak again until 2019 – which would mark the longest period between price peaks in more than 60 years. Once inflation is stripped out, average UK house prices are unlikely to hit 2007 levels again in real terms until 2031.”


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    Never heard of Knight Frank! Surely it should be Frank Knight who I do know.

    • 11 November 2012 21:49 PM
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    Seems to me that KF are pretty much correct about house prices outside London. They became detached from historical multiples of earnings due to excessive and excessively cheap credit. The credit is still excessively cheap - result of QE - for people who are already levered. But sensibly the banks are not lending more at current prices because they know they will lose their shirts. Managed decline of the market is their strategy whilst defending their balance sheets. But I disagree with KF on London - why so bearish? If you are a new millionaire in a BRIC country you have three objectives: 1) get the money out of your country, 2) preserve the capital and 3) get some kind of yield on it. Of course US Treasuries will do this for you - but with what kind of yield? 1% for 10 years! London top end property yields 3-4%. London top end will continue to rise - you watch. There is a LOT of dodgy money out there and London property is the absolutey ideal place to park it. DC and the Boy BLunder won't do anything to stop it. The great sale of London has many more years to run before people wake up and realise what has happened.

    • 10 November 2012 08:02 AM
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    Thanks Jonnie, i've been popping in occasionally mainly lurking.

    Yes, of course, the joys of confirmation bias.

    On a serious note, i'm not necessarily agreeing with KF's recent assessment. It's the almighty volte face from a year earlier that tickles me. That and, of course, I don't get paid for the cr*p I write.

    • 08 November 2012 15:30 PM
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    Good reply Jonnie - appreciate the (increasingly rare) chance to debate the points without things degenerating into a slanging match. You should know by now that any report suggesting house prices could rise uses fundamentally flawed statistical analysis, but any report predicting falls has been divinely inspired.

    I agree that there is the opportunity for people to dodge the bullet, Keanu Reeves in the Matrix style. That's where 300 year-low interest rates come in. Given that everything else is rising in price and wages generally aren't increasing, that makes it less likely though, wouldn't you agree?

    The South East is particularly susceptible to increases in train fares, since a lot of the folk living there commute into London. Unlike houses, train fares do only seem to only ever go up... The latest infliction of annual pain is just weeks away, I believe?

    • 08 November 2012 11:00 AM
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    'THE TRUTH' - on a site primarily aimed at Estate Agents (clue is in the site name by the way...) you should not be misdescribing anything - and the name you post under is a prima facie example. Suggest a rebrand.

    You might also want to change the record, while you're at it...

    • 08 November 2012 09:42 AM
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    "UK housing market set for longest recovery on record"........More like UK housing market set for biggest dose of realism on record.

    • 08 November 2012 09:08 AM
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    First we get Rant back and now Sibley’s! Good to see you both boys.

    Now, just an observation but when Knight Frank publish a report saying prices are gonna rocket you dismiss it all as nonsense and say their judgement is flawed but when they do a reverse ferret and say prices are coming down you seem to accept it………….odd that.

    Anyway – at one end of the scale there is the view that the South East is up to its ears in debt, all of which will become secured on properties where the owners have an IO mortgage and will be in all sorts of trouble any time soon, finally cracking the average price nut that has been so difficult to crack so far

    ………………..then there is the view that many of these people can and will sort themselves out and dodge the bullet, its going to be interesting and only time will tell but if they cant and along with the rest of the country they NEED to sell and flood the market we will see a speedy decline in prices, and an increase in transactions, until then im not sure anything else but supply and demand is going to do it


    • 07 November 2012 17:56 PM
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    It doesn't actually work like that, creditors consider bankruptcy as a last resort. Each case is dealt with on an individual basis.

    Creditors consider the amount of debt, the equity, the cost, the debtors ability to pay and the impact on the creditors reputation.

    Likewise most debtors would look to an IVA or defending the petition such as if the debt is secured or if they have made an offer to repay that have been unreasonably refused by the creditor. It's really not the 'no brainer' you suggest but rather a considered process.

    • 07 November 2012 17:01 PM
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    That's a shame, I recently deleted my bookmarked EAT article from last year; where Knight Frank confidently predicted London prices would double by 2014.

    Funny how fundamentals get in the way of fantasy.

    • 07 November 2012 16:14 PM
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    yes but if you have plenty of equity then bankruptcy is a no brainer for a creditor and many go straight to it.the official receiver is likely to make the debtor sell their property

    • 07 November 2012 16:12 PM
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    From October 1, 2012, creditors – firms that you owe money to – can apply for a charging order against your home if they win a county court judgment (CCJ) regardless of whether you have kept to the agreed payment schedule.

    Previously, creditors could only apply for a charging order if a CCJ was granted and if the debtor – the person owing the money – did not keep to the repayment schedule.

    The important fact to keep in mind is a charging order does not give a creditor permission to make you sell your home or raise finance from the equity in the property to repay a debt.

    To force you to sell your home, the creditor has to apply for a court for an order for sale. The likelihood of a creditor trying to force a sale is slim, and even if an application is made, courts are reluctant to grant them and it's very rare for a Judge to grant an order.

    Although this new rule change makes the administration process easier to secure debt it doesn't make it easier to actually force a sale. Likewise, although you can be made bankrupt over a debt of £750 this route is not preferred as considering the cost of this action and your low ranking in a queue of other debtors, most will rather just write that debt off.

    • 07 November 2012 15:50 PM
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    average wages only up 62% over 25 years...slightly worrying


    • 07 November 2012 15:35 PM
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    @ray evans

    you are obssessed with horses

    whats wrong with holding the same view over and over again?

    how about commenting on the unsecured debt article?

    • 07 November 2012 15:32 PM
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    What do you think?:

    Inflation from 2000 to 20012 = 36% ish
    House Prices = 300%

    300 - 36 = 264 / current inflation of 3% = 88 years until normal. Woops,

    Either that or until average wage hits £53,000....joy.

    • 07 November 2012 15:32 PM
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    Well Ray, not actually being an EA, I tend not to comment on stories relating to Rightmove's fee structure, the worthiness of EPCs etc.

    Unless of course you'd like me to start chipping in on those subjects too? ; )

    • 07 November 2012 15:31 PM
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    @rantnrave on 2012-11-07 15:17:28

    Of course not! Unlike some - I comment on more than just 'prices'. Do you know who the 'ponies' are? ;>)

    • 07 November 2012 15:27 PM
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    you used to only be able to apply for charging order is you failed to pay ccj payments agreed versus your current financial circumstances.

    now the creditor can apply for charging order just because you are in arrears or defaulted

    doesn't sound much but fairly major about turn versus before

    • 07 November 2012 15:21 PM
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    They may not be in arrears now Jonnie. That may change when they are required to start making payments towards the capital each month too though.

    The banks aren't repoing much now because they need to protect their balance sheets. Once those get repaired (and much of the UK's economic policy is currently directed at achieving this aim), the epic levels of today's forbearance will come to a halt.

    Ray - are you including yourself in that last post? ; )

    • 07 November 2012 15:17 PM
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    Fair comment but wouldn’t that mean the lenders enforcing repossession and or forced sales on people that are not in arrears? A huge behaviour shift needed especially as currently you can be quite profoundly in arrears and still not have either enforced?!


    Interesting point on second charges but is this new? Im sure you can have a charge placed on your property by a creditor through the courts already.

    Regardless I agree there are a number of people that should really be selling their property and clearing debts rather than sitting on a time bomb.


    • 07 November 2012 14:47 PM
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    There are a couple of 'one trick ponies' on this site? ;>)

    • 07 November 2012 14:43 PM
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    you can force someone into bankruptcy for owing just £750

    anyone with equity is fair game unfortunately

    some councils go straight for this methos with serious arrears...debt will cripple the people of this country as creditors scramble for a piece of the pie

    • 07 November 2012 14:14 PM
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    Not sure the banks will let them have the luxury of 17 years to ponder their situation Jonnie.

    • 07 November 2012 14:02 PM
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    sorry to mention japan again

    whats more worrying is the little know piece of legislation allowing unsecured debt to be secured againt your house(sneaked in)

    with personal household debt still ballooning,banks are getting goalposts changed left right and centre


    • 07 November 2012 14:00 PM
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    Mate, you are well known here now so you don’t have to start every post with the Japan thing as if it’s the first time you have posted, you will never have your views fully expressed if you start every day from scratch


    Good to see you back after a break. Interesting on IO stats, ill assume you’ve got them right – ive talked about these people before, usually look pretty well off from the outside and usually managing to pay the monthly standing order to the lender with relative ease, trouble is even the ones that bought with IO mortgages in say 2005 have about 17 years until they have a problem so that’s a slow tick, tock – we’ll all get old waiting for them to sell up

    17 years ago I was a 25 year old having the time of my life and it’s a long distant memory so 17 years in the future feels like a hell of a long time


    • 07 November 2012 12:17 PM
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    Knight Frank are suggesting that the longest housing correction on record will follow the longest the boom on record. In other news, their accounts department are reporting that 2 plus 2 equals 4... At least the idea that we're entering 'a new paradigm' of permanently high property prices is being exposed for the Vested-Interest myth that is always was.

    Lots of new data coming to light in recent weeks about the madness and unsustainability of last decade's boom in prices. Apparently over half of all outstanding mortgages in the South East are Interest Only, the vast majority of which have no capital repayment vehicle in place. Tick, tick, tick...

    Good to see reference to the collpase in real prices though. Halifax's data out yesterday shows UK house prices have now lost a third of their real value since 2007. So it turns out after all that investors can indeed go wrong with bricks and mortar.

    That Halifax data also confirms that the average UK house price is now a whisker above the 2009 lows, and soon to be lower than at any point in the last nine years. Even a stabilisation of London prices will bring the decline in prices elsewhere across the country much more into focus. Should prices fall in the capital, the year-on-year measures used by Halifax, Nationwide and the Land Registry will quickly accelerate to -5% at least.

    • 07 November 2012 11:32 AM
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    prices are falling across the country with interest rates at 0.5% and 375 billion of QE

    I predict prices will fall for 20 years like japan and in 20 years time they will probably be 30-50% lower than they are now

    transactions will increase as prices fall and more people sell

    • 07 November 2012 10:18 AM
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    So what?
    These WEEKLY predictions from various pundits are now commonplace and change with the wind.
    We'll see!

    • 07 November 2012 10:08 AM
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    sounds a ballanced and well reasoned article to me

    • 07 November 2012 09:23 AM
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    Another prediction which as far as I can see has been made on pure guess work!!!

    • 07 November 2012 09:21 AM
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    ..and they used to be so positive! They've never been the same since.

    • 07 November 2012 08:37 AM
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