House price predictions 2008 - region by region

Why is the mood more pessimistic?

Blame it on a succession of downbeat surveys highlighting the extent of the market’s slowdown. Buyers’ confidence is subsiding under pressure from more expensive borrowing, although prices are still 7 per cent higher than a year ago. Land Registry data showed London prices falling by 0.6 per cent in October, although there was an overall rise in England and Wales of 0.1 per cent. Nationwide reported a 0.8 per cent decline in November, the largest fall since June 1995. Bank of England mortgage approval figures fell by a third in October.

This is all very sudden isn’t it?

No one should be surprised that the market’s previous giddy growth is stalling. This was widely forecast last Christmas as the inevitable consequence of the strain imposed on household budgets by higher interest rates, particularly for those whose discounted fixed rate mortgage deals were due to come to an end. It’s all about affordability: prices have risen faster than earnings for 11 of the past 12 years, according to Nationwide. Mortgage repayments now account for more than 51 per cent of the average first-time buyer’s take home pay. The market’s temperature cooled in parts of the North and Midlands in the spring.

Are we in for a crash?

Correction would probably be a more appropriate description. Stagnation-not slump - appears to lie ahead. No respected commentator currently believes there will be a repeat of the crash of the late 1980s which was the result of a shock upward move in interest rates and higher unemployment. The slowdown of 2008 could feel more like the doldrums of 2005 when the number of homes bought and sold fell by almost a fifth. A drop in the market’s temperature makes people feel disinclined to move. Suddenly homes are for nesting not investing. Get ready for the trend to cocoon.

Are some locations more vulnerable?

Slightly down-at-heel neighbourhoods populated by those who have been priced out of a nearby more salubrious areas tend to fall out of favour when the market is more depressed. There are also concerns about lower value properties (that is under £350,000) as the prospective purchasers of these homes could find it harder to get mortgages even if they are prepared to overextend themselves.

But are house prices in Kensington and Chelsea going to carry on as normal?

Lower City bonuses mean there could be fewer bidders for properties between £1 million and £2 million. But it looks as though international buyers will continue their love affair with more expensive metropolitan homes, with many opting for big flats in Chelsea and Kensington.

Won’t the American sub-prime scandal make things worse?

Opinions remain divided as to whether the repercussions of the sub-prime scandal - which has exacerbated America’s serious housing market slowdown – will stifle consumer spending and thus trigger a recession. If this does come to pass, the pain would spread here. But, in some quarters, there is a conviction that the US economy will contrive to brush off its cares and woes and muddle through, especially in an election year. But the credit crunch produced by the sub-prime fallout – which made banks reluctant to lend to each other and brought about the £40 billion Northern Rock calamity - may also make them reluctant to lend to you.

And why is that?

Most banks have suffered losses on their holdings of sub-prime mortgage debt. As Mervyn King, Governor of the Bank of England, warned this week, they will repair this by being less generous. Anyone needing a loan of 95 per cent or more of a property value, or aspiring to borrow five times their income should prepare for disappointment because mortgages sold to US homebuyers with poor credit records were parcelled up and sold on to institutions worldwide as supposedly secure investments.

Should I rethink taking out a loan to invest in a buy-to-let flat?

Buy-to-let loans will be especially hard to get. Meanwhile, low-grade developments in city centres, such as Leeds and Liverpool, that are oversupplied with flats are seen as the most vulnerable part of the market. This does not mean prospects are poor for all buy-to-let investments. Many amateur landlords are long-term investors and not overindebted; they are also enjoying rising rents with demand for rented accommodation at its highest for five years. Tenants are either prospective purchasers waiting for weaker prices, or first-time buyers priced out of the market.

I need to sell as I have a new job elsewhere. Any hints?

Peter Rollings, of Marsh & Parsons, the estate agent, recommends that you attempt to take an objective view of your property’s desirability. He says: “Even in a difficult market, a fantastic property can get a good price, but there is less enthusiasm for a lower quality house. If your house ticks all the boxes, you can be bullish about the price; but if it doesn’t then you have to set the price by relation to comparable properties that are also available.”

Does all this mean bargains for first-time buyers?

Despite the lending squeeze, it’s still possible to get a mortgage if you have a deposit saved. But unless you are expecting a pay rise soon, you may still struggle to afford the monthly repayments.