The Council of Mortgage Lenders (CML) has revised up its forecasts for housing market activity for 2006 and 2007, saying it now expects house prices to end this year 7% higher than at the start up from 2% in February.
Next year, the forecast for house price inflation has been raised from 2% to 3%.
But, at the same time, the CML has also upped its forecast on the level of interest rates and the extent of repossessions.
The strength of the housing market is one of the reasons the CML now expects interest rates to end both 2006 and 2007 at 4.75% rather than the 4.5% previously forecast.
And this may also mean higher forecasts for arrears and possessions. The CML now foresees 130,000 rather than 120,000 mortgages in arrears of over three months by the end of 2007, and 15,000 repossessions in both 2006 and 2007 and increase of 3000 from the previous forecast of 12,000.
Property sales are also now set to be stronger than the CML expected back in February, prompting a rise in the forecast for this year to 1.2m up from the previous expectation of 970,000.
Gross lending is now expected to reach £310bn this year up from £285bn previously forecast, but the CML is sticking with its previous forecast of £285bn next year. Meanwhile net lending is now predicted to total £100bn this year up from the £80 billion forecast in February, before falling back to £85bn next year up from £75bn.
Jim Cunningham, CML senior economist, says: "The immediate signs are that demand will remain robust over the next few months. But we take the view that confidence and activity are closely associated with interest rate movements and expectations.
"The small rise in short-term interest rates expected in the second half of this year and the rise in fixed-term rates that we have already seen is likely to result in a modest fall in the level of transactions in the second half of this year, and we expect this to continue into 2007.”
But Cunningham remains optimistic about the prospects for the housing market in 2008 saying a more benign inflation outlook is expected to result in lower interest rates by the start of the year. This in turn, he says, should support demand from home-buyers and buy-to-let investors and result in firmer house price growth.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email [email protected].IFAonline
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation