Mark Chilton, chief executive at Purely Mortgages said:
“We enter 2006 with rather different growth prospects, notably in comparison with other advanced economies, from previous years. Declining consumer confidence has led to growth stalling and the impact of the current pensions debate and saving shortfalls will further erode this confidence during the early part of next year. Thus, while both the euro zone and the US are increasing interest rates, the pressure in the UK will remain downward to reinstall consumer confidence and spending. During the course of next year, I expect these pressures will cause base rate to drop to a low of 3.75% before recovering in the fourth quarter to 4%.
Fuelled by new found confidence in their customer retention programmes, I expect the main lenders to use this interest rate cycle to increase their margin on standard variable rates. One of the major factors driving this is the increased competition for deposits which they are encountering from a number of internet based banks. As a result, I expect Halifax standard variable rate at the end of 2006 to be 6.25%.
In many respects, the confidence issue will be the dominant factor in the housing market next year. If the anticipated further cuts in interest rate occur, they will have the impact of preventing a serious decline in transaction volumes and apparent house prices. Even with the anticipated decreases, I anticipate transaction volumes will be down by about 10% on this year. For many years, the evidence has shown that the UK no longer has a homogenous housing market. This contrast will be more marked next year than ever. Properties in high demand and low supply such as the very high end of the urban market, expensive country properties and waterside properties will experience a firming of their prices. In areas where property is more commoditised, vendors will experience difficulties in selling without further price reductions. It is difficult to estimate the overall impact on the national house price statistics with these different components and with further demographic shifts caused by increased localised unemployment. However, being a brave man and acknowledging that the major indices are dominate by the middle market, I expect these indices to show a value decline of approximately 4% next year.”
