The Woolwich believes the slight rise in confidence (from 55 in July to 56 in August) shows that talk earlier in the year of a housing market crash was overplayed.
The broadly positive tone of The Woolwich confidence balance, and of other housing market indicators over the last month, suggest that the fall-back in house price inflation to a more sustainable level will be a gradual process, rather than the sharp correction that some pundits had feared. Indeed, The Woolwich figures have been down playing fears since people’s confidence in the housing market began recovering from this year’s low point of 50 per cent in March.
However, despite the rise in confidence, the figures still point to a continuation in the slowdown of the rate of house price inflation, albeit over a longer time frame than originally anticipated.
Several factors will be of particular importance to the evolution of the housing market slowdown:
- Levels of personal debt are reaching all time highs. Therefore consumer’s attention will increasingly focus on the likelihood of interest rate rises. As many forecasters believe - including ourselves - we are approaching the trough in the interest rate cycle, and the subsequent hikes in interest rates anticipated during 2004 could well impact significantly on people’s appetite to take on further debt. In turn, that may mean that consumers may be more cautious about assuming more debt in order to move up the property ladder.
- It is difficult to get away from the economic fundamentals that point to a slowdown from the heady rates of house price inflation experienced recently. And despite August’s slight rise in confidence the current backdrop of slowing earnings growth, lower bonus payments, and higher household taxes, mean that an increasing number of people will find that they simply cannot afford to chase house prices any higher.
Andy Gray, head of mortgages for The Woolwich, says: “Talk of a house price crash seems to have left homeowners cold. Continued confidence in house prices points to a gradual slowing of the market rather than a sharp correction in the rate of house price inflation that looked like it may have been on the cards at the start of the year.
Mortgage lending
UK Gross Mortgage lending decreased slightly in August at £24bn. Overall mortgage lending continues to remain strong as remortgaging continues to drive the mortgage market. Gross mortgage lending up 16 per cent year on year from £20.7bn in August 2002 to £24bn August 2003. The Woolwich expect lending volumes to remain high year on year as people continue to remortgage to historically low and competitive interest rates.
