A period of stability is bringing homebuyers back into the marketplace, said the Nationwide today and a quiet confidence for the future is set to turn the market.

According to Alex Bannister, Nationwide 's Group Economist, Whilst increased confidence about the outlook will bring buyers back to the market, they will be more price conscious than in recent years. "Higher activity levels and improving sentiment should help underpin current property valuations but they are unlikely to reignite rapid house price inflation. We continue to expect small price rises in some months and small falls in others, with prices rising by 2% during 2005 as a whole," Mr Bannister said.

The price of the typical property rose 0.4% (seasonally adjusted) in January. Prices have now been broadly stable for six months with prices rising by an average of just 0.25% per month over the period.

This contrasts with the previous six months when prices rose by an average of 1.7% per month. As a result of January’s price increase, the annual rate of house price inflation eased slightly to 12.6% from 12.7% in December. The price of the typical house now stands at £151,757.

Turning point for sentiment to bring price conscious buyers back to the market

"Since last summer the focus of homeowner and would-be homeowner concern appears to have shifted from ‘how high interest rates will rise’ to the future direction of house prices," said Mr Bannister. "Consequently, it is increasingly a buyers’ market with prospective buyers staying on the sideline until the outlook becomes more certain. However, with prices having been broadly stable for six months and the market nearing the end of the usual seasonal lull, there are indications that sentiment may be about to turn more positive."

“By June 2004 the Monetary Policy Committee had raised the base rate four times in just eight months. It was at this point, following successive increases in May and June, that market expectations for future rates peaked with the market believing the base rate was set to rise to 5.5-5.75% by mid-2005."

"The base rate rose again in August but since then rates have been on hold and many in the financial markets believe the interest rate cycle has peaked. The slowdown in the housing market since August has played a part in altering the interest rate outlook. However, the rapid move from an environment where prices were rising by 1.5-2% per month to one where prices have been broadly stable has led to increased uncertainty about the outlook for house price inflation."

“As a consequence, activity has slowed sharply. The number of house purchase mortgages approved fell to just 77,000 (seasonally adjusted) in November. This was the lowest level since September 1995."

"However, the introduction of mortgage regulation may have temporarily depressed reported activity. We expect activity levels to return to around 90,000-100,000 cases per month in the coming months."

“Whilst increased confidence about the outlook will bring buyers back to the market, they will be more price conscious than in recent years. Higher activity levels and improving sentiment should help underpin current property valuations but they are unlikely to reignite rapid house price inflation. We continue to expect small price rises in some months and small falls in others, with prices rising by 2% during 2005 as a whole.