Speaking at a conference in Southampton, Kate Barker, member of the MPC, warned that the current level of house prices was above a point that could be fully justified by low interest rates, economic stability and weak supply. She said this made the market ‘vulnerable to a major change in expectations about future prices’.
Barker stressed she did not expect a significant slowdown in the market, but maintained the outlook was ‘highly uncertain’, with the BTL market a ‘potential source of weakness’ due to the combination of higher rates, little change in rents and possible reduced expectations of price appreciation.
BTL accounted for 12 per cent of total mortgage lending in the first half of 2007, so a decline in demand would have an adverse affect.
Barker said: “Whether this leads to pent-up first-time buyer demand, supporting prices, will also depend on expectations. If actual price falls were to become anticipated, prospective first-timers might simply decide to defer their entry into the market, reversing the recent wish to get ‘onto the ladder’ early. It is the inherent uncertainty which clouds the outlook.”
Thomas Reeh, chief executive of blackandwhite.co.uk, said: “The market is going to slow down, but the fundamentals for growth are strong. We still have a great tension between supply and demand and BTL has to continue to grow. What we don’t need is lenders to stop lending. I’m optimistic, but realistic. I accept a slowdown is likely, but it’s no time get panicky.”
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