2006: The Year Ahead for Property Investors

A FEW PREDICTIONS FOR THE NEW YEAR!

Whilst property price inflation over the last year has certainly slowed down considerably when compared to the last couple of years, there were signs at the end of 2005 that prices were picking up again in the run up to Christmas. The Halifax put the increase at 4.5 per cent in November compared to prices a year ago, with the rate of house price inflation having risen for the fourth consecutive month. Having said this, the annual rate for 2005 turned out to be 3 per cent, a far cry from the 12 per cent seen in 2004, according to Nationwide.

To put this in context, 2005 was the first year in which the stock market outperformed the property market; the stock market in the UK rose by 16 per cent in 2005, which was much greater than many analysts were predicting. However, analysts are predicting that this rate of growth will not been this year, with the annual rate of growth slowing to somewhere between 4 and 6 per cent.

So what is going to happen to house prices over the next twelve months?

The big mortgage lenders such as Nationwide and Halifax, together with economic analysts and RICS, together set house price inflation somewhere in the region of between 1 and 5 per cent, with most settling around 3 per cent as the property price rise for 2006.

The UK economy certainly slowed down in 2005, putting growth at about 1.8 per cent. The IMF has predicted two years of slightly stronger growth for the UK in 2006 and 2007, with 2006 seeing 2.25 per cent growth in the economy, rising to 2.75 per cent in 2007. The OECD and the World Bank also share the IMF’s view for the next couple of years. But these forecasts are way off what the Chancellor was optimistically predicting, between 3 per cent and 3.5 per cent.

I would therefore predict that whilst we won’t see any spectacular gains nationwide in 2006 for house prices, the current rate of slow but steady growth will continue in 2007 before starting to pick up again. England and Wales will continue to see slightly stronger growth than Scotland. This means that holding steady and not making any radical moves in terms of significant new investment in property for the short term could well turn out to be a wise decision, keeping your current property element in your portfolio ticking along for at least the next six months. This is the time to sit tight…