What will happen to your house in 1996?

Candidates in the annual house price guessing game have this year produced such similar results that they might be accused of conferring. House prices in 1996 will rise by two per cent, is the experts' view. So the one thing most owner-occupiers can be sure of is that the value of their house will not rise by two per cent next year.

This is not cynicism - though given the accuracy of previous predictions, that might be justified. It is simply the realisation that a national prediction has become meaningless. If price rises average out at two per cent, most people are likely to see no rise or a bigger rise depending on the kind of house they own. Two per cent is, in any case, such a tiny increase (pounds 1,200 on a pounds 60,000 house) that it falls well within normal negotiating margins.

For most in the property world, 1995 was a year of great disappointment. The Halifax Building Society believes the housing market went into a second recessionary dip from which it is now emerging. Prices in the mainstream market fell by nearly two per cent and the number of house sales fell to 1.15m - compared with 1.3m in 1994 and 2.1m in 1988. The effect has been to strengthen the notion that there may be good years and bad years, but the general trend is one of stable prices and low volumes.

The property market now shows signs of dividing into three broad sectors: at the bottom are the former council houses, small terraces and starter homes - hot-beds of negative equity, which remain almost impossible to sell; next comes the mainstream market epitomised by the three-bedroom semi where prices are flat and sales sluggish; finally there is the quality market for good homes in good locations, where demand outstrips supply.

If those homes are in London, or the places London workers like to live, they are already likely to have seen prices recover by between 10 and 30 per cent since 1992. As the capital has grown into one of the major financial cities of the world demand for property - and prices - has grown with it. London increasingly operates separately from the rest of the UK housing market, and the market is expected to remain broadly flat for the next 18 months.

As London's recovery has been heavily influenced by foreign buyers, it has had no impact on the rest of the country. Instead, those places which are performing best are other cities with strong financial sectors, such as Leeds and Edinburgh, plus those areas with good communications. So mainline Cambridge is doing well at the expense of branchline Norwich, while the Bristol/Bath axis outperforms much of the south west.

As a recent survey for the Nationwide Building Society pointed out, fear and uncertainty in the housing market is primarily linked to jobs. People put off extending their mortgage or buying their first home because they were afraid of unemployment.

Now many estate agents and analysts believe the public has grown accustomed to job insecurity. They understand that this is as secure as it gets, according to Gary Marsh of the Halifax Building Society. He believes that if people need to move, they might as well do it. "The only other choice is to live in the same house for ever."

The young renter

Despite rent rises of up to 10 per cent in 1995 the lettings market has continued to grow. In the cities, where renting now accounts for between 20 and 30 per cent of estate agency business, it has been the tenure of choice for thousands of young workers in their twenties and thirties. Everyone believes that practice will continue. But could 1996 be the year those first generation renters decide to become buyers?

Many say yes. Researchers for the Joseph Rowntree Foundation believe the shift from owning to renting has reached a plateau among young people. Winkworth, the London chain active in this market, believes the same. "Six years ago, when the property market collapsed, these buyers were in their early to mid-twenties; now they're approaching thirty," says Simon Agace, Winkworth's chairman. "As new priorities develop - for example marriage and children - home ownership is likely to be perceived as a desirable and even necessary status. Even if diluted over a three of four year period, this group of waiting buyers still represents a concentration of demand that will almost certainly push up the value of two-bedroom flats and houses in good areas of London."

Willie Gething of the buying agency Property Vision disagrees. He thinks the boom in central London rentals will ripple out through the capital. "Corporations are not going to give their employees licence to buy," he says. "Nor will they pay huge rents. Instead, they will say the banker who lives in south Brooklyn can live in Clapham, rather than Kensington, when he transfers to London."

Common to all is the belief that when they do buy a home, these late starters will leap-frog the lowest rungs of the housing ladder. As a result, those small flats which have lost up to 30 per cent in value, will see no improvement. Their owners will either have to rent them out or stick it out, as they face their seventh year of negative equity.

The single owner

There was a Monty Python sketch in which John Cleese played a businessman who marvelled at the way charities could collect money from people simply by shaking a tin in the street. "What, you mean you just ask them for money and they give it to you? Amazing." The same might be said of some loft developers. "What, you mean you buy up a derelict old building, clean it up and put in a bit of wiring and people pay a premium for having to put the walls and fittings in themselves?" In property terms 1995 was the year of the loft. Anyone who invested in glass bricks or timber flooring must be laughing all the way to the bank.

With people having children much later, and high levels of family break- up, the singles market is growing, particularly in cities. A niche market has evolved for child-free, fairly wealthy adults, who are buying a lifestyle rather than a certain number of bedrooms. The London chain Foxtons sold two flats near Clapham Common for premium prices in 1995. "Both properties were good examples of stylish well presented accommod- ation which the imaginative buyer is showing an increasing interest in," said Peter Rollings. As the number of small households grows, this niche is expected to expand further in 1996.

The family

"On no, not another cash buyer," was the estate agent's lament when a couple arrived at his office in Winchester, Hampshire. Like most prosperous parts of the country, Hampshire has been bedevilled by a lack of period houses for the many families keen and able to buy. In that particular niche it is a seller's market. In November Strutt & Parker's Exeter office sold five out of six properties for more than the guide price.

Demand for family houses in the most popular villages and suburbs has carried on growing throughout 1995. Families are having to pay a premium for well laid-out accommodation, green space and good schools. If they cannot find a period house to suit they are increasingly turning to the new-build sector. The Nationwide index for newly-built properties in the third quarter was up 7.9 per cent on 1994 while the general index was down 0.8 per cent.

Quality is the key. Berkeley Homes, which targets the top of the new build market, reported a rise in pre-tax profits of 31 per cent this year. Savills stresses how the quality sector has outperformed the mainstream. "Prime country houses have benefited from high growth concentrated at the top end of the housing ladder amongst equity-reliant buyers without mortgages. But they have also been held back due to a lack of trading up activity from the lower reaches of the provincial market," it reports.

That mainstream provincial market has been disappointingly sluggish in 1995. Owners of houses which have no outstanding features find they can only compete with the dozens of others on offer by reducing their price. The worst problems are on estates built in the Sixties and Seventies, where the design and build quality are poor. It is a buyer's market, but there are very few buyers.