Gross advances in mortgage lending will create problems if they continue to increase at their current rate, according to market analysts Datamonitor.
Its report Housing Market ‘ Boom or Bust? notes that first-time buyers are being priced out of the market which will starve lenders of clients. The report also points out that remortgaging is now the market driver, at 51% of all lending, as house purchases are slowing significantly.
Recent Bank base rate cuts have not helped matters, according to Alex Boorman, analyst at Datamonitor and report author. He said: ‘If and when lenders pass on the rate reduction to borrowers the cost of mortgages will fall. Such a development could add further fire to the housing market raising potential for a significant slowdown over the next 12 months.’
Steve Sandiford, head of borrowing products at BM Solutions, said: ‘It is true the market is not sustainable at present growth levels, but we are seeing a levelling out of prices, and eventually the price asked will match the price first-time buyers are willing to pay. The question is, how long that will take to happen, and if the present levels of remortgaging and equity withdrawal will last long enough until that happens.’
Despite the problems it will cause, Datamonitor forsees continued growth and concludes that gross advances will remain buoyed by rising house prices and low interest rates, with the total exceeding £240bn by the end of 2007.
