Peter Beaumont summarises industry views about the outlook for the housing market
Figures released recently by the British Bankers Association (BBA) have given the strongest indication that the slowdown in the housing market has finally bottomed out. Gross lending in February reached £11.9 billion, up 3 per cent from January. The number of approvals for new mortgages also rose by 22 per cent over the previous month to 158,391. However, these figures are still lower than the same time last year, with mortgage approvals down 25 per cent and overall lending down 12 per cent.
David Dooks, director of statistics at the BBA, believes the decline of 2004 is finally bottoming out: “We have seen the start of the seasonal upturn in loan approvals, albeit from a very low point.”
However, not all industry pundits are convinced that the market has finally turned the corner. The CML in its March Market Commentary says the pace of the slowdown in 2004 has undoubtedly eased and it believes we will continue to see a mixed pattern over the next few months, but with the overall picture remaining consistent with its forecast of a gentle slowdown.
Stark warnings
Unfortunately both the Bank of England and Lehman Brothers have issued far starker warnings. Kate Barker, who wrote a government-commissioned report on the housing market for the Bank of England has recently said that “there are some signs which might indicate a housing bubble”. However, she said it was impossible to tell how far prices might fall.
Lehman Brother has no such problems putting figures on the fall. It has recently stated that it believes house prices are overvalued by 20 per cent and is predicting a 7 per cent drop in prices by the end of 2007. Merrill Lynch is in broad accord with Lehman Brothers and believes the most likely scenario is a 5 per cent fall this year and 3 per cent fall next year.
Confidence increase?
Predicting the housing market is a notoriously difficult task, primarily because one of the key components to market performance is consumer confidence. The Nationwide’s March Consumer Confidence Report paints a very bullish picture. It shows that consumer confidence has risen across a range of indicators including income, employment, the economy and spending. Consumers also expect their homes to rise in value by 1.8 per cent over the next six months (up from 1.2 per cent in January). All of the Nationwide’s key confidence indicators are at an all-time high since the survey started in June last year.
Reports in the intermediary market are also indicating an upturn in the fortunes of some companies. Mortgage Next and RAMP have both recently announced record months and BuildStore, the self-build specialist, also stated that February was a record month. At Mortgages plc we have seen both applications and completions increase dramatically but it is difficult to know if this reflects a general up-turn in the market or increased interest in our recently-launched product range.
Out in the field
I have consulted a number of industry practitioners during the past week to get their views about the current and future state of the market.
Bill Safran, CEO of Trigold, said: “Although the mortgage market has improved markedly from the post-‘Mortgage Day’ blues it will remain a difficult market with providers being more creative with their mortgage propositions. The additional burden of compliance and increasing interest rates post-Budget will make 2005 a challenging year.”
Nick Baxter, director at Mortgage Promotions, said: “We are on a cusp - just look at all the ‘For Sale’ boards around where you live. If purchasers received a bit more positive news, like another rate hold or reduction, the 2005 market could be good. However, a bit of negative news such as a rate increase and the market will die. If vendors get realistic on price the market will start to move again.”
Rob Clifford, chief executive of Mortgageforce, said: “UK consumers are in love with property ownership - not just principal residences but holiday homes, second homes and buy-to-let investment. We are inherently in favour of property ownership which explains the leap from £120 billion to £200 billion-plus of annual lending during the last five years. I suspect that some pent-up demand will result in a smooth ride this year, where summer does not die off but where autumn doesn't exceed expectations - a reliable, unsurprising year.”
John Rice, managing director of RAMP said: “We’ve had a couple of years where the ‘feel apathetic factor’ has prevailed. However, I think there will be a revival of confidence and activity after the general election.”
Finally, John Lee, head of sales at Genesis, said: “At best, prices will remain flat, but there is a very real possibility of prices falling in 2005. The number of purchasers has fallen away and people needing to move are having to accept offers, but the majority of vendors are choosing not to accept a reduced price and sell, thus we are not seeing a true reflection of falls in property values being reported. The remortgage market will remain strong with borrowers looking to consolidate debt on to a cheaper rate. Buy-to-let landlords will remortgage to cut costs, and the popularity of the offset mortgage will continue to increase.”
So what’s the common view – you tell me. On a final note, just as I was filing this copy with MI - News, the Nationwide announced house prices had fallen by 0.6 per cent in March. The rollercoaster continues.
Peter Beaumont is sales and marketing director at Mortgages plc
