Click here for house price growth from April to October 2007

With less than three weeks to go before Christmas, buying a house is likely to be low on most people’s list of priorities – especially in the current climate. Prices are falling, buyers pulling out, repossessions rising. But, despite all the gloomy predictions, could now be a good time to buy?

If the doom-mongers are correct, and this is the start of a slump similar to that of the early 1990s, it’s probably best not to buy or trade up unless you really have to. A report last month by Karen Ward, chief UK economist at HSBC, said that British houses are overvalued by about 30% – which, if true, would be cause to abandon all thoughts of moving home and concentrate on Christmas presents instead.

But what if, as some commentators appear to believe, this is not a crash but a minor correction, similar to that seen at the end of 2005? Then, annual house-price growth was just 2.2% – down from 12.3% the previous year –prompting speculation that the boom was over. Yet by the end of 2006, the market was rising by a healthy 9.1% again. Anyone who jumped in then has seen the value of their property soar – such as James Harvey, 32, and his wife, Lucy, 36, who in January 2005 bought a three-bed Victorian terraced house in Battersea for £650,000. They have just sold it for £950,000, and, although they have not yet found another home, are pleased with their profit. “We didn’t really want to move,” James says, “but I thought I’d rather be homeless with a million quid in the bank than wait and watch it go back down to £650,000.”

How to fight your way out of a housing market slowdown

Do you have the clout to tough out the downturn? Emma Wells and Lucy Denyer sort victors from victims

Background

• Housing market analysis: the plight of first-time buyers

• Home economics - January's shock house price stats

• Home economics - the property market

• The harder they fall

• Home economics

Background

• Wise up to size

• The property market: October 21, 2007

• Shires fall to foreign land rush

• House price gloom as the wealthy turn away

How to beat a property market slowdown

The market is cooling. But learn the rules and it could work to your advantage

• Why won't my house sell?

Background

• Empty homes: the mystery of the UK’s million vacant homes

• Opening bids: Why the Government must do something about Britain’s empty properties

• It’s dire in the shires

• Cash in on your biggest asset

Smoking ban: a drag on prices?

Paula Hawkins examines whether house prices have gone up in smoke

Background

• Misery for over-extended and over-indebted

• UK house market is ‘heading for crash’

• The property market: October 14, 2007

• Held to ransom

Either way, before plunging in, it is worth bearing in mind some tips:

Get personal:Take advantage of the lull to get closer attention from agents. “There is less competition at this time of year,” says Tim Harriss, a partner in the Guildford office of Knight Frank. Agents’ offices tend to be quieter in December – especially this year – which means they will have more time to spend with buyers, who can get to know the areas in which they are interested really well.

Even if you don’t intend to buy immediately, it is worth looking. “It’s quite easy to see what’s on the market at the moment, just by spending a bit of time,” says Justin Marking, managing director of the search agent Prime Purchase. “You can get advance warning of things coming on next spring, and get first crack at them.” It is also the time to look if buying in the country. “There won’t be any leaves on the trees, so, if there is road noise, you’ll hear it now,” he says.

Drive a hard bargain: “There is nervousness about what’s going to happen next year, so vendors are keen to get things tied up before Christmas,” says Liam Bailey, head of research at Knight Frank. “If you have people who put property on the market in September or August, and it’s still unsold, you could well get a good deal.”

Try to distinguish between homes with prices under pressure because of market sentiment and those with problems. “Ask fairly frank questions of the selling agent,” Marking advises. “Look at the survey, do the due diligence.”

Don’t be loath to haggle: the seller is probably sitting on a tidy bit of equity, and being equally tough with whom-ever they are buying from. “You can be quite predatory,” Marking says. “Don’t be frightened, provided you can perform quickly. Certainty and the speed with which contracts are exchanged are more important than ever.”

Choose your area carefully: Do you take a chance or play it safe? For a lower-risk investment, this could be your chance to buy in an area you thought you couldn’t afford. In the last downturn, at the end of 2005, prices in some of Britain’s most established areas were among the first to fall, reveals Savills. Prices in Kensington and Chelsea fell first: by 0.21% quarter on quarter between October and December 2004. In South Gloucestershire, they fell by 1.76% between December 2004 and February 2005. However, such prime areas bounced back faster. In the past two years, Kensington and Chelsea has seen 54% growth: average prices rose from £552,648 in December 2005 to £849,638 in October this year. The South Gloucestershire market was up by 20%, from £170,052 to £204,912.

There are good reductions out there. Foxtons, for example, has a one-bed flat on Eaton Place, in Belgravia, that has been on sale since September – its price has fallen from £800,000 to £600,000 (0800 369 8667, www.foxtons.co.uk). In Tetbury, Gloucestershire, Knight Frank has been trying to sell a five-bed house since October; it is for sale at £975,000, down from £1.2m (020 7629 8171, www.knightfrank.co.uk).

Perhaps more risky is buying in areas that have been hardest hit. A map from the Land Registry (see left) shows prices across swathes of the Midlands, the northeast and west Wales have grown by 0%-4% in the past six months; parts of the northwest, London and the southeast have seen more than 5% growth.

Buy in a hard-hit area and you could make a huge saving: average prices in Pembrokeshire, west Wales, for example, dropped from just over £182,500 in July to just over £179,500 in September. On a local level, look at undeveloped tertiary areas. The infrastructure may not be as good, and there isn’t as much kudos associated with living in them, but they could be wise places to buy.

“These areas are where you are going to get the most if you can predict that investment is still going to happen,” says Paul Tabor, a partner at the search agent Garrington Home Finders. He cites Elephant and Castle, in south London,as a prime example. However poor the market conditions, it will be developed, but buyers must be prepared to wait a little longer for this to be reflected in popularity – and price. The biggest risk is that such areas haven’t hit rock bottom. “The downturn could affect these properties for the longest,” warns Lucian Cook, director of residential research at Savills.

Don’t confine your search to estate agents: Many potential sellers wait until the new year until they market their homes, so the pickings on offer may be slim. Sad as it may sound, the real bargains are to be found in repossessions and other forced sales – and where better to look than at auction?

Allsop, the auctioneer, is about to hold one of the largest residential sales it has ever run: more than 400 properties will go under the hammer on Tuesday at the Royal Garden Hotel, Kensington. “We’ve got some super stock from very committed sellers,” says Gary Murphy, a partner and auctioneer at the firm. Half the catalogue comes from mortgage lenders, and reserve prices are 5%-10% lower than they were at the peak of the market earlier in the year, he says.

It’s a similar story elsewhere. Phillips Smith & Dunn, based in Devon, is auctioning two properties on December 14, and has seen less interest than it would have done earlier this year. “In a stronger market, you could get a flyer,” says Roger Berry, a partner in the firm, “but at the moment, it’s not likely. People haven’t got the confidence to bid to that level.”

Get to Barnstaple for the auction and you could pick up a two-bed holiday bungalow, ripe for redevelopment, on the sand dunes in the pretty estuary village of Instow. The guide price is just £125,000, although it is likely to go for more. Many places sold at auction need work, so seek professional advice before bidding. You must hand over 10% of the price on the day, and normally have just 28 days to complete, so organise finances in advance.

Think about buying a new-build property: With the year-end approaching, house builders desperate to shift stock are offering incentives to lure buyers. At Zen Buildings, a scheme in Bolton, for example, Miller Homes is offering 5% deposit, £500 towards legal fees and free carpets. If buyers move in before Christmas, they will receive £500 in Trafford Centre vouchers. In Leeds, Barratt Homes will pay 5% deposit for first-time buyers on some flats and houses.

If no incentives are on offer, ask for them. “Now more than ever, you can negotiate,” says David Bexon, managing director of SmartNewHomes.com, a website dedicated to the new-build sector. He suggests pushing for at least 3%-4% off the price, plus any other goodies you can get thrown in.

But don’t get too carried away, and, in the case of temporary mortgage subsidies, make sure you can afford to keep up your repayments when the deal finishes. “You need to do some sort of scenario analysis,” Bexon says. “Avoid offers of free holidays and cars like the plague – you’re not buying a holiday or a car, you’re buying a house.” Remember that new-builds, especially flats, have been one of the worst-performing sectors in recent years, and there are serious gluts, especially in northern cities such as Leeds and Manchester. Do your research carefully before jumping in.

Get organised: At this time of year, solicitors might not be as readily available as you’d like, so make sure they won’t be away skiing at a crucial point in negotiations. Line up your funding and, in the uncertain financial climate, don’t be surprised if lenders change products at short notice.

“Some vendors will take a lower price if you’re prepared to move quickly,” Marking says. But don’t lose sight of why you’re buying. “The rules remain the same,” says Andrew Scott, a director in Strutt & Parker Lane Fox’s Chelsea office. “Don’t take the short-term view, stick to the essentials – location, proportion, view, noise. You need to fall in love with a property. If you find it before Christmas, do it. If not, forget it.”

Why we won’t see another crash

In 1989, the Berlin Wall came down and the pop charts were dominated by Madonna, Jive Bunny and Black Box. That year also saw the beginning of a house-price crash that lasted until 1994. So, is history about to repeat itself?

Unlikely, according to exclusive research for The Sunday Times by Lucian Cook, director of research at Savills estate agents, who expects prices to start going up again in the second half of next year and rise at an annual average of 5% in the next five years. He identifies four key differences from two decades ago:

1 At the end of 1989, interest rates were 15%, far higher than now; they had risen by 76% from the start of 1988, which had a strong impact on affordability. By contrast, rates are expected to fall to 5.25% next year.

2 At the end of 1988, average house prices in the UK were growing at an unsustainable 32.9% a year; they peaked this year at a more modest 10.9% in June (although they hit 28.9% in prime central London).

3 The economy was growing far more slowly in 1989, and moved into recession at the start of the 1990s. By contrast, GDP is still growing, although the rate of growth is expected to slow to 2.2% by the end of 2008.

4 House prices were far lower relative to wages in 1989, but net household incomes now are roughly 6% more than basic expenditure (which includes housing costs). In the third quarter of 1988, the same comparison revealed a deficit of 10% – which rose to more than 30% by the end of 1989.

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