Already the signs are that buyers are taking on lower mortgages, stretching themselves less and making lower offers, according to the latest research from property websites assertahome.com and propertyfinder.com.

After hitting a low point in November, confidence in the housing market recovered slightly in December. 65.8% of respondents expect house prices to fall in 2005, compared to 72% in November. 30% now expect house prices to rise, compared to 24% in November.

Overall, househunters expect national prices to drop 8% in the coming year, whereas in November, expectations were for falls close to 10%. All regions expect prices to drop, even northern regions and Scotland, which have been consistently the most optimistic. East Anglians remain the most pessimistic, expecting prices to end 2005 11.9% lower, with Londoners close behind at -9%.

This modest recovery in confidence is supported by increased buyer interest on the propertyfinder and assertahome websites. Requests from buyers for property details have shown a marked growth since November rising 8% month on month.

In January 2004, only 9% of househunters expected prices to fall for the year and overall, respondents forecasted an increase of 7.2%. For 2004 the differing indices reported that house prices rose between 1.1% and 13%, so househunters expectations were remarkably accurate, falling midway between the two extremes.

Jim Buckle, managing director of assertahome and propertyfinder.com said: ‘After months of growing pessimism on the outlook for the market, house buyers and sellers ended the year on a slightly more optimistic note. Respondents still expect prices to fall, but are more sanguine than of late. It is too early to say whether this is the start of a new trend or merely a waft of seasonal good cheer. But increased activity on our websites does support the survey’s findings.
We survey people at the coalface of the housing market looking for homes and buying and selling property. They have proved very reliable at spotting trends over the last year, even before they turn up in official figures.’

Buyers hold the balance of power

Buyers know they are now in a strong position and this may explain the increase in buyer interest. On average, they are making offers 7.2% below the asking price. Half of sellers have responded to market conditions by cutting the asking price for their home and are still prepared to entertain offers below that level.
Buyers are paying lower multiples of their income and taking on much lower mortgage levels

When considering their mortgage arrangements, on average buyers are preparing to borrow 56% of their new home’s value compared to 65% in June. Househunters in almost all income brackets have reduced the extent to which they are prepared to stretch themselves. Since the high point in May, when buyers were on average prepared to pay 4.7x their household income for property, the extent to which buyers are prepared to stretch themselves financially has diminished markedly. As higher interest rates have affected affordability by increasing mortgage payments, buyers are now prepared to pay just 4.4x their household income.
Jim Buckle said: ‘Greater bargaining power means buyers can secure their new home for a lower multiple of their incomes. What’s more negative equity is unlikely to destabilise the market as borrowers are taking mortgages at a modest 56% of their new home’s value and so will be relatively well protected if the market drops.’

Interest rate expectations tick up again

During 2004, househunters’ expectations for interest rates proved very close to the mark with house buyers and sellers correctly anticipating the likely moves in borrowing costs. After hitting a low in November, in December, there was an increase in the proportion of respondents who believed interest rates may yet rise again.

Jim Buckle, said: ‘Consumers have apparently responded to signs of increasing inflationary pressures in the economy and so more of them believe another interest rate increase may be on the cards, even though they clearly believe that the housing market needs a rise in borrowing costs like a hole in the head.’