According to Datamonitor, such a rate of increase is unsustainable and will be without sufficient fuel over the next few years as first time buyers are increasingly priced out of property ownership.
Following last week’s Bank of England interest rate cut, Alex Boorman, Financial Analyst at Datamonitor, commented: "If and when lenders pass on last week’s rate reduction to borrowers the cost of mortgages will fall. Such a development could add further fire to the housing market raising potential for a significant slowdown over the next 12 months."
Total gross advances have increased every year since 1998, but the biggest increase by far has occurred since 2000, reflecting the buoyancy of the housing market over this time. Between 2001 and 2002, total gross advances increased by some 36.4%, from £160.4 billion to £218.8 billion. Separating loans for house purchase from loans for remortgaging reveals that the latter continues to drive the market as demand for the former slows down significantly. Remortgaging now accounts for 51% of total gross advances.
Datamonitor's forecasting for the UK mortgage market concludes that the increase in gross advances seen in recent years, and particularly since 2000, will not be sustained in the years to 2007. However, gross advances will continue to be buoyed by rising house prices and low interest rates and as a result will surpass £240 billion by the end of 2007.
