Writing for MyFinances Mike Coogan, director general of the CML, predicts house prices will rise two per cent next year.
In the second half of 2005 the housing market proved itself to be much more resilient than many commentators had originally thought. Only a few months ago, house price growth nationally had fallen to negligible levels and reports from estate agents and surveyors painted a somewhat gloomy picture for the second half of 2005.
However, towards the end of last year we saw clear signs of a recovery in buyer confidence and increased activity in the housing market. In light of this we forecast that house prices would increase by around four per cent higher at the end of 2005 than they were in December 2004. But it is unlikely that this is a precursor to a fresh upward surge in house prices in 2006. Affordability pressures look set to remain tough during the year, and interest rates will probably remain close to current levels. In this light we expect to see house price growth of around two per cent.
Gross mortgage lending also showed resilience towards the end of 2005, with some monthly lending figures approaching the record levels seen in late 2003 and early 2004. This was supported by high levels of rate-driven remortgaging, with a high number of fixed-rate deals maturing towards the end of the year. Looking ahead, we forecast that rate-driven remortgaging will continue to boost overall lending figures, and overall we expect £275 billion of gross mortgage lending in 2006 and 2007. While this is down only slightly on the £280 billion of lending in 2005, if realised it would still see mortgage debt growing by seven per cent per annum by the end of 2007 - out-pacing the likely growth in household incomes.
Despite higher mortgage debt levels, we do not expect significant mortgage repayment problems to arise. Last year saw small increases in the number of mortgages three months or more in arrears which could be due to a number of factors such as higher interest rates. While these increases are consistent with the small rise in the numbers of arrears and possessions in 2005, we do not forecast a dramatic upward trend over the coming year. Indeed, we expect the numbers of arrears and possessions to remain at their historically low levels.
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