Savills warns of property slowdown

A LEADING estate agent has warned that house prices will rise by their slowest pace for nine years in 2005 as the formerly buoyant property market becomes 'less sexy'.

And in a caution that will send chills down the spines of its rivals, FPD Savills believes that turnover - the number of completions - is falling to worrying levels for several players in the sector.

The firm claims that while there will not be a dramatic correction in the housing market, homeowners should expect prices to rise by just 2% next year and by an average of 2.6% over the next three.

London is expected to perform better than some regions, with an average increase of 4% a year between now and 2007, but the forecast is markedly below the average since the mid-to-late 1990s.

Richard Donnell, head of residential research at FPD Savills, said: 'The housing market is going to slow down in the short term but Armageddon is not around the corner. If you compare it to the last 10 years, the returns from residential property are just not going to be as sexy.'

The gloomy prediction comes a day after property website Rightmove warned that asking prices on British homes witnessed a 'sharp correction' in the month to mid-November. Halifax and Nationwide are expected to set out far lower forecasts for house price growth when they report figures for November over the next fortnight. Donnell last year told observers to brace themselves for a new era of far lower inflation in the property market but concedes he has been surprised by the market's relative strength this year.

Annual house price growth in 2004 is expected to be about 10% on the measure used by FPD Savills, compared with an initial forecast a year ago of just 4%. Donnell said the Bank of England had done a good job of softening the blow through its successive interest rate rises and feels that confidence may begin to return to the market in the New Year if consumers feel the cost of borrowing has peaked.

But he claimed sellers will face a battle as buyers become far more circumspect. Turnover has fallen by 10% in the past three years in London. He said: 'Agents would probably prefer a fall of 20% in house prices just so they could get selling again.'

Britain's largest estate agent, Countrywide, last week sparked fears of a housing pinch for the sector by issuing a bleak profits warning. Hundreds of agents are reported to have lost their jobs because of stagnating sales.