In its CML Market Briefing, the CML says: “In the November Inflation Report, the Monetary Policy Committee (MPC) revised their central forecasts for inflation and are now expecting it to overshoot the target next year. This compares with an expected undershoot in their previous forecast. Going forward the MPC will continue to face a dilemma of a housing market that requires a higher interest rate than the rest of the economy. As a consequence we expect to see some finely balanced rate decisions coming up, but on balance we think rates are likely to stay on hold at 4% for some time.”
According to the CML, on a seasonally adjusted basis, gross mortgage advances hit a new record level last month and totalled £20.3 billion. Net advances also hit a new high of £7.9 billion in October. With approvals returning to the high levels seen a few months ago, the CML expects to continue to see strong advances going forward. Property transaction numbers remained steady in October with 131,000 transactions during the month according to the Inland Revenue.
However, the CML acknowledges that it is hard to predict what will happen to the housing market in the future: “As a result forecasting the housing market has become much more difficult over the last few months. Our central forecast continues to be for a soft landing, which would entail a moderation in house price growth primarily driven by affordability constraints. Strong house price growth over the last few years has reduced the ability of potential first time buyers to enter the market. Moreover, post tax earnings growth has eased this year and is expected to slow further. In addition, households will have the impact of increased national insurance contributions from April 2003.”