Bradford & Bingley’s 2005 review and 2006 predictions
Mark Stevens, Bradford & Bingley’s managing director of strategy, reviews the key events of 2005 and looks ahead to what’s in store in 2006.
2005
Economic data throughout much of the year has recorded weak growth and sluggish consumer spending – much to the frustration of the beleaguered high street. The cut in base rate in August signified a turn in the interest rate cycle after two years of tightening, however, the jump in inflation and rise in oil prices over recent months has meant the MPC has kept base rate steady at 4.5%.
The housing and mortgage markets have shown good recovery in the second half of the year. Housing transactions and mortgage completions have increased steadily from the lows seen at the start of 2005, boosted by borrowers’ confidence levels. Mortgage affordability is still good and will continue to be supported by low and stable interest rates and reduced levels of house price inflation.
2006
The fundamentals that support the housing market should remain strong for the foreseeable future. Unemployment and interest rates are low compared to historic levels and can be expected to remain stable. The housing and mortgage markets are also expected to be very stable next year. Relatively buoyant after the downturn at the end of last year, we anticipate this higher level of activity to be maintained and, perhaps, show a further modest increase. We also expect that the specialist lending markets of buy to let, self-cert and lifetime will grow faster than the mainstream mortgage market.
We predict there will be a 0.25% cut in base rate in the first half of next year which will further stimulate activity. We consider that the only reason for the Bank of England to raise interest rates again would be if the economy, and the housing market in particular, were to prove much more robust than expected.
This stability in the market is reflected in our forecasts for house prices which we predict will end 2006 around 2% to 3% higher than they are now.
