Lenders predict 7% fall in house prices in 2008
House prices will fall by 7% in 2008 as restricted mortgage lending continues to freeze the housing market, mortgage lenders have predicted.
Trade body the Council of Mortgage Lenders (CML) has revised its previous forecast of 1% falls in light of the slowdown in lending and house sales.
Forecasts for how house prices will look at the end of 2008 have varied wildly, with economists such as Morgan Stanley’s David Miles suggesting a 20% fall over the next two years. And housing minister Caroline Flint was recently left red faced after a sharp-eyed photographer snapped a briefing note she was carrying that stated prices would fall by up to 10% “at best”.
The CML, which represents lenders in the UK, says lending was down by 16% in Easter from April last year.
As a result of less lending, it now believes house prices will by 7% lower at the end of the year than at the end of 2007. It also expects the number of properties bought and sold to reduce by 35% throughout 2008.
Notes from the Monetary Policy Committee’s May meeting on interest rates shows eight members voted for rates to remain at 5%, while one member voted for a 0.25% cut.
The notes show the Committee felt that rising inflation ruled out interest rate cuts. And while it was acknowledged that the economy was likely to slow, it judged this was necessary for inflation to return to its 2% target in around two-years time.
Michael Coogan, director general of the CML, says: “Over the next few months, lending volumes will get worse before they get better. The market is still very uncertain, but lenders are working hard to ensure that borrowers coming off fixed rates remain on track, that arrears and repossessions are minimised, and that pricing is as attractive as they can make it in a market where they must manage the demand for lending with caution.”
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.