House prices are set to outstrip earnings this year, as pressure continues to mount on homebuyers. Laurence Sanders, economic adviser at Bristol & West, told delegates at the The Mortgage Event that although the increase in average earnings in the UK would be 4.1% this year, house price growth at the end of 2003 was likely to be 10%. He also expected a 10% increase in 2004, falling to 5% in 2005.
He said: “Despite the slowdown in the economy in 2001 and 2002 the market continues to move forward and I believe prices will show a 10% increase.”By the end of the year Sanders estimated a base rate of 3.5%, increasing to 4.75% in 2004. “We would expect European interest rates to remain low. It may be two to three years before UK rates come into line with European rates.”
He also predicted gross lending would be higher than the £220bn gross (£80bn net) achieved in 2002.
Sue Anderson, head of external affairs at the CML, agreed but expressed concerns over a much steeper downturn. She said: “There is a view that says we were heading towards a correction but in the last few months we have seen a bounce back. Transaction levels have dropped which is also a worry. First-time buyer figures do not represent a lack of demand but a lack of ability.”
Because of the problems faced by first-time buyers, she urged brokers to include information on tax credits for clients: “There is £1bn in tax credits currently unclaimed, which could significantly contribute to affordability.”