Prices poised for a chilly second dip

There are fears that rising interest rates combined with reduced government help for homeowners could cause a second dip in the housing market. Savills Research, once the most bullish of the analysts, is warning that prices at the lower end of the market could fall again over the next year or two.

This would be a disaster for the 1 million homeowners trapped by negative equity who own small, poorer quality properties. It would further widen the gap between owners of the better houses that have seen some price recovery and those at the bottom end where prices have, at best, stabilised.

Yolande Barnes of Savills Research believes mortgage rates will certainly hit 10 if not 11 per cent by the end of the year. This comes just as tax relief on mortgage interest is set to fall to 15 per cent in April and as state help for unemployed homeowners is due to be drastically reduced in October.

"They could have got away with the reduction in Miras (mortgage interest tax relief)," Ms Barnes said, "if the other things were not going on. Miras takes on far greater significance when coupled with the withdrawal of benefits."

She said the Government's chief economic aim seemed to be to prevent a boom in the housing market. Instead, it had undermined people's confidence to such an extent that current owners dare not trade up and take on a bigger mortgage and potential first-time buyers dare not buy at all. "There is a real shift from last year," Ms Barnes said. "I think we are in for another year or two of setbacks."

Her fears echoed those of Corporate Estate Agents - those owned by large financial institutions. Their latest figures show the January market to have been a big improvement on December, but not big enough to compare with the activity in January 1994.

New instructions last month were up 124 per cent on December's figures, but 6.6 per cent down on last January. Similarly, sales rose 120 per cent compared with December but fell 16 per cent year on year.

Peter Constable of Corporate Estate Agents blamed the falls on rising interest rates. They might be necessary for some parts of the economy but they were "severely damaging" to the housing market, he said.

"One can only fear the impact of further interest rate rises, the effects of the Miras reduction and the government plans to cut state support for unemployed homeowners," Mr Constable continued. "The latter should be shelved and mortgage lenders should refrain from chasing up interest rates."

The marketing concept dominating the top of the new homes business is individuality. Builders are increasingly offering buyers the chance to personalise their new homes, by choosing finishing touches such as tiles and kitchen units or by altering the internal layout. The quid pro quo is that they have to buy early, giving the builders cash in the bank.

Now Signature, the up-market wing of Admiral Homes, is taking the idea a stage further. It is giving buyers the chance to design their own home on its Parkgate development in Surrey.

The 17-acre development sits next to a proposed golf course site and includes a "village green" and a pond at the centre. The first six houses will be built by Signature in the style that has become the top-of-the- range norm: pitched roofs, gables, contrasting brickwork, chimneys and small paned windows. Buyers of the other plots can choose between one of these existing styles or come up with their own.

This is not going to mean a dozen glass and steel cubes arising out of the Surrey commuter belt. Owners will have to fit in with the planners' notions of suitable architecture.

In reality, many are likely to choose a variation on one of the Signature homes. Few people have the confidence or imagination to design a house from scratch. This compromise gives the buyer the feeling they are getting something tailor-made while ensuring the development loses the monotony which so often blights modern estates.

One of the coolest commuter locations in Britain has come up for sale. Only 24 miles from Glasgow - as close as Windsor is to London - lies Inchfad Island in Loch Lomond. Its 120 acres contain one main house and three holiday cottages, a small harbour, two private jetties and a few golf fairways. The island is being sold by Strutt & Parker in Edinburgh (031-226 2500) for £550,000 - the price of a house with about one acre in Windsor.

Correction: Last week we printed the incorrect phone number for the Mayfair showroom used by 17 estate agents based in the Home Counties and East Anglia. It should be 071-499 2727.