29 November 2007 House Prices Forecast To Still Rise 1% in 2008
Transactions and net mortgage lending volumes to fall by almost a fifth in 2008 - Arrears and losses in sub-prime market likely to exceed current expectations
Weaker market sentiment, stretched affordability levels and changes in the lending sector are set to result in a pronounced slowdown in the rate of house price inflation and mortgage lending over 2008. While acknowledging there are pockets of risk in both the housing and mortgage sectors, these are expected to remain contained with limited adverse implications for the broader housing and mortgage markets.
Property transactions likely to be the greatest casualty of the slowdown...
Property transactions rather than house prices are likely to be the greatest casualty of the current slowdown. While Hometrack expect the annual rate of house price inflation to slow to 1% by the end of 2008, transaction volumes are expected to fall by 17% over the year.
But a lack of supply will provide a support to pricing...
The next 12 to 18 months will be characterised by a general lack of housing for sale which in turn will provide a support to prices. This is a trend that we expect to continue for the next 12 months.
Many households simply don?t need to sell...
The reality is that the majority of households simply do not need to sell their home. While changes in the mortgage market could result in an increase in needs based sales, we do not believe that there will be sufficient numbers of these to result in year on year falls in the headline rate of house price inflation.
The mortgage market is also facing an uncertain outlook...
A combination of slowing mortgage demand and tightening credit standards are expected to result in an 18% decline in net mortgage lending in 2008. There will be a continued flight to quality by mortgage lenders but arrears and losses in the 'sub-prime' market are likely to be greater than currently anticipated as certain types of borrower struggle to re-mortgage.
Mortgage lending expected to show a significant slowdown...
Over the next 12 months we expect net mortgage lending to fall by 18% with gross lending falling to its lowest level for 2 years from £359bn in 2007 to a projected figure of £319bn in 2008.
Hometrack believe arrears and losses in the adverse credit market (lending to those with County Court Judgements and arrears histories) will be much higher than expected. Higher mortgage interest rates and a move towards wider margins will place vulnerable consumers at the risk of more serious arrears and of property repossession.
Looking to the short and medium term...
In the short-term the risks are on the downside driven by declining house price expectations, higher mortgage rates and reduced mortgage supply. However, the risks around the medium term outlook are far more evenly balanced with lower interest rates, intense competition in the prime market and a structural shortage of housing supply, all positive drivers for the market.