The CML is taking a benign view of next year’s housing market despite warning of a potential crash if house prices continue their steady rise.
Offering her forecast for the year ahead, Jennet Vass, senior economist at the CML, predicted interest rates to rise to around 4.75% by the end of next year.
She expected house price inflation to have fallen back from around 23% this year to around 7% at the end of 2003. Vass forecast lending over the year to grow a further £10bn to £225 bn.
A slight rise in unemployment, coupled with a slowdown in average wage earnings and creeping interest rates is expected to bring on arrears figures, although not sharply.
Other forecasters have echoed a similar outlook for the coming year. Laurence Sanders, economist for Bristol & West said: ‘In terms of house price rises next year will see inflation of between 7% and 10%.’ He said next year’s figure would also be affected by the market’s performance over Christmas, and in what state it entered the new year.
While he also expected interest rates to remain within a 5% ceiling, he said he would like to see a rise in the spring to help slow prices down.
Sanders said conditions in the housing market were beginning to become ‘demanding’ and if a correction was not seen in the next six months, ‘issues of a hard landing for the housing market,’ would come to the fore.