Whats in store for the housing market in 2006?

Whilst many journalists and city commentators were predicting a serious house price correction in 2005, the reality was a mercifully soft landing and gentle easing off from the runaway inflation of the previous 5 years.

Newspaper editors tried to outdo each other throughout the year with ever more cataclysmic tales of a housing meltdown, aware that an 'everythings rosy in the garden' headline does little for circulation. Yet in response, the market proved remarkably resilient.

As specialist mortgage advisers to the contractor community, we found that freelancers seemed largely immune to talk of a downturn and clearly took a long term view of their investment whilst benefiting from driving hard bargains with vendors and developers. Whilst the housing market in general experienced a reduced level of activity , a combination of more contract availability and rising hourly rates meant that we had our busiest year since the Y2k boom of 1999. In addition, interest rates looked to have peaked ( contrary to predictions early in 2005 , the base rate was reduced by the Bank of England in August to 4.5% ) and , as ever , contractors elected to buy rather than pay someone else's mortgage for them by renting from a landlord.

Looking ahead to the next 12 months, perhaps we can take encouragement from the stats coming through from the tale end of 2005. House price inflation rose by 0.7% in November according to figures from the Office of the Deputy Prime Minister (ODPM) released this week. This means that the value of the 'average' British home rose in November from £185,398 to £186,431. The fundamentals that underpin the British love affair with owning our own property remain and we live on a small island, with a growing population which is undergoing massive changes in housing demographics (with more demand for single occupancy properties as a result of later marriage, increased life expectancy and divorce). We are also increasingly aspirational in terms of wanting to trade up to a better lifestyle and all this helps fuel a housing market that is made possible by the most competitive and innovative mortgage market in Europe.

Interest rates are at historically very low levels and look likely to remain so, whilst the UK is as close to full employment as economists state it is possible for us to be.

Even the governments ludicrous 11th hour decision to backtrack on its plans to allow ownership of residential property within a pension, has had no effect on market sentiment.

The outlook for 2006 looks encouragingly stable for owner occupiers and also for the increasing number of contractors who are using profits made on their residential property to help fund deposits on buy to let investments.

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