Confidence down but growth still on cards

Concerns over mortgage rates intensified in September as’s monthly survey of confidence in the housing market saw reduced optimism over the outlook for house prices.

Respondents now expect house prices to rise just 3.9 per cent over the next twelve months, broadly in line with wage growth. This is slower than their expected twelve month growth rate of 5.1 per cent during the summer and 6.1 per cent in the spring.

However, the optimists comfortably outnumber the pessimists and confidence is holding up much better than it did following the Bank of England’s aggressive series of four base rate hikes in 2004.

Now, after five interest rate rises in less than twelve months, 75% of people expect prices to rise, fewer than the 83% in May this year, but three times as many as in November 2004, the low point when only 24% of respondents expected house prices to continue rising.

Housing transactions are strongly correlated to confidence with a lag of two to three months, suggesting that although transaction numbers are likely to dip, they will not hit the lows experienced in January 2005 when only 103,000 homes changed hands (compared to 157,000 in July this year) , provided that events do not cause a major loss of confidence from here.

Interest rates are the biggest worry as 81% of homebuyers fearing a further hike, while 76% fear worsening mortgage affordability.

Sellers are more concerned about increasing numbers of homes coming onto the market in their area, feeling that prices are not performing as well as other areas.

Warren Bright, chief executive of said: “Buyers and sellers still expect house prices to rise, just more slowly. The housing market has responded to higher base rates and will adjust further thanks to the credit squeeze in the wholesale markets.

“For new borrowers, especially those with poorer credit records, mortgages will be harder to come by and rates offered by lenders are rising more generally too. But with the likelihood of a further base rate rise receding, mortgage costs will not rise.

“That’s very good for stability in the market. We won’t see forced sellers so there is no reason to fear a sharp downturn. The housing market is slowing in an orderly fashion and will continue to do so - higher base rates should now come off the agenda.”