Supply issues to prevent significant sector decline

Transaction levels are likely to see a slight resurgence next year and climb back to around 880,000, roughly the level of activity recorded in 2010. However, to put this in context, total sales in 2006 were almost double this amount at 1.67 million.

The weak economic picture anticipated for the next six months, along with the prospect of increased unemployment, means that demand to purchase property is unlikely to see any significant increase and will remain relatively flat. While the Government’s recently announced mortgage indemnity scheme is designed to help up to 100,000 buyers onto the property ladder, this is likely to have limited impact as it is restricted purely to new-build properties.

Meanwhile, despite the prospect of growing unemployment, repossessions will see only a very marginal increase in 2012. The number of repossessions for this year is likely to be around 35,000 and, although next year’s figure may be slightly higher, the total number of properties taken into possession over the next 12 months should not exceed 40,000.

Elsewhere, the residential lettings market will continue to perform well in 2012. Demand for rental properties remained strong throughout 2011, as many first-time buyers were unable to access the sales market. This looks set to continue over the coming 12 months. However, the gap between demand and supply is shrinking, suggesting that the increase in rental values may begin to slow as the year wears on.

Simon Rubinsohn, RICS Chief Economist, said: "The general economic climate is likely to be the biggest influence on the residential property market next year. Prices could edge a little lower as unemployment continues to rise. However, the lack of supply in the market is likely to prevent any significant house price declines.

"Transaction levels should see a slight increase, although mortgage lending is likely to remain subdued which will limit the scope for improvement. As a result of this, the lettings market will remain firm which means that rents are likely to increase further, albeit at a slower pace than in 2011."

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