Instead, they predict that prices will rise steadily in line with inflation over the next few years.
The experts at the Land Data debate, hosted by the Wriglesworth Consultancy and held in London on 22nd April, said house prices will flatline this year. However, concerns were expressed about a further boom/bust period beyond this as demand continues to outstrip supply and if mortgage availability improves.
The panellists were Ian Baker, managing director, Galliford Try Homes; Martin Gahbauer, chief economist, Nationwide Building Society; John Heron, managing director, Paragon Mortgages; David Newnes, managing director, Your Move and the BBC chief economics correspondent Hugh Pym.
David Newnes said: “This year prices will be flat but they will gently rise through to 2012 when we might see some different dynamics if there’s an easing of mortgage funding. Transactions are significantly up 30% year on year but supply coming to the market is outstripping that. In the absence of other external shocks we could see house prices getting back to 2007 prices in real terms within three or four years.”
John Heron added: “The key feature behind the strength of house price rises recently has been the shortage of supply and the low build rates and when compared to demand, this is likely to carry on. We will continue to see owner occupiers sitting on their hands benefiting from low interest rates and pocketing the extra cash.”
The panel did not see lending returning to “normal conditions” in the short term and furthermore could see no reason why lenders would be compelled to increase loan to values while banks are required to hold more capital and regulation means higher mortgages costs.
Martin Gahbauer said: “The short-term reality is that the funds are simply not there at the moment; essentially the UK banking industry and mortgage sector faces a funding gap of several hundred billion pounds. The industry’s big challenge over the next couple of years is to refinance the existing stock of lending. The funds that are available for new lending are barely enough to cover the demands for lower LTV lending at around 75-90%. So the incentive for lenders to move further up the risk curve to 90% is limited simply by the amount of funds available, particularly in light of the uncertainty about future regulatory and capital requirements.”
Ian Baker added: “We’ve had a look at the rate of approvals of mortgages at 80-95% loan to values recently and from a basket of 50 applications nine were approved, compared to a more steady market of 2005-07 when 41 of those would have been approved. So there’s a massive different for people who want to buy a house, who see the benefits of buying new build property, and are not able to get the finance.”
