The update for 2005 also predicted a fall in the Base Rate to 4.25 per cent by the end of the year with the first cut likely within the next few months.
The report showed house prices have remained static during the first six months of the year with the annual rate of inflation falling to 3.7 per cent in June – its lowest since March 2001.
It says affordability is good with interest rates remaining low and payments counting for 20 per cent of the gross income of the average new buyer. For the first time since 2001, annual average earnings growth is outpacing annual house price growth and HBOS expects a decrease in the house price to earnings ratio to 5:2 by the close of 2005. It said this is expected to ease affordability issues faced by first-time buyers.
Martin Ellis, chief economist at HBOS, said: “The UK housing market is on course for a gentle slowdown. We continue to expect a 2 per cent fall in house prices this year nationally.
“This slight decline should be set against nine years of rising prices during which the average home in the UK increased in value from £61,564 to £162,850.”
Fionnuala Earley, group economist at Nationwide Building Society, agreed that affordability would improve and viewed the future with optimism. She said: “We expect prices to remain on a neutral level.
“We’ve seen a slight pick-up recently and things don’t seem as disastrous. Confidence is the main risk factor. No one can be certain about the future of prices as we’re in a very strange economic situation. If people start to worry about prices falling then it could be self-fulfilling.”
