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COMMENT
According to the UK's biggest mortgage lender, HBOS (the Halifax/Bank of Scotland group), house prices are expected to rise modestly during 2006. HBOS predicts that, after taking account of general inflation (rising prices), there will be no change to the average house price in real terms. In other words, the group expects the price of the average house to increase by under, say, 3% next year. As you'd expect, the picture is mixed across the country, with HBOS expecting prices to rise 7% in Scotland and 5% in Northern Ireland, where housing is still cheap relative to the rest of the UK. However, East Anglia (0%), the South West (1%) and the South East (2%) are the laggards. Of course, you should take these projections with a pinch of salt, because HBOS does have the biggest stake in UK housing: around two-ninths (22%) of the total mortgage market, to be precise. Also, HBOS' record for its past predictions is nothing special. For example, in December 2001, it confidently predicted that the price of the average house price would rise by 5% in 2002, but the figure ended up more than five times higher than this. Oops! HBOS predicts that rising wages (it expects them to go up by 4½% in 2006), a high level of employment (although unemployment has gone up ten months in a row), interest-rate cuts and continuing economic growth will prevent prices from falling next year. To me (someone who has sold his family home, banked the profit, and is sitting on the sidelines in a rented property) HBOS' predictions are nothing more than whistling in the dark. After all, it's hardly going to frighten us by forecasting a fall, is it? Indeed, in eighteen years of working in financial services (including several years at HBOS itself), I don't recall a single occasion when HBOS wasn't bullish (optimistic) about future house prices! It's important to understand that, in recent years, we have enjoyed hyper-growth when it comes to house prices. The long-term average for house-price rises is around 8%, yet they rose by 12% in 2001, a whopping 26% in 2002, 16% in 2003 and 15% in 2004. Hence, these recent returns are neither normal nor sustainable, because house prices can't keep rising faster than wages forever. Thus, in mathematical terms, we need to brace ourselves for a "reversion to the mean", which could entail a few years of negligible house-price growth, or even falls. Then again, whatever happens to house prices in 2006, it's worth tackling the things that really matter: your housing costs. According to HBOS, non-mortgage housing costs (which includes bills for Council Tax, utilities, insurance, etc.) are expected add seven-tenths (70%) to mortgage expenses next year. So, rather than worrying about house prices and other things beyond your control, why not cut your housing costs and use the savings to pay off your mortgage earlier? These three articles will help you to do just that: Here's wishing you a happy 2006! More: We can help you to find cheaper home loans and lower insurance premiums! Cliff owns shares in HBOS.