Lenders bank on falling rates

Members of the Intermediary Mortgage Lenders Association, predict modest increases in house prices in 2008, believing that a peak in interest rates this year will see them drop back as we enter into the new year. These findings represent the consensus view of respondents to IMLA’s recent survey of members.

Over half (55%) of IMLA members think that house prices will see a rise of around 2%-3% over the next quarter, with the remaining 45% expecting them to remain broadly stable. The average percentage rise expected by IMLA members is 1.4%.

Over the next year, 75% of IMLA members expect house prices to rise by between 3% and 12%, while 20% say they will be stable. Only a small minority of 5% expect price falls, of up to 7%. On average, intermediary lenders expect prices to rise by around 5.3% over the next year.

Peter Williams, executive director of IMLA, comments: “Our members expect the housing market to cool significantly over the coming year, but not to go into reverse. The house price inflation they expect, of just over 5%, is around half the level registered over the past year by Halifax and Nationwide. But, importantly, only a small minority of IMLA members – just one out of twenty – think that house prices will fall over the coming 12 months.”

Intermediary lenders also have a generally positive view on interest rates, reflecting their relatively benign viewpoint on house prices – although there was some variation in respondents’ views. While the majority of lenders agreed that rates would peak at 6% by the end of 2007, two said they thought they would be at 5.75% and one expected Bank of England base rate to reach 6.5% by year-end. The consensus view is that they will average just over 6% in December.

Looking into 2008, the vast majority of lenders predicted that Bank of England base rate would end the year lower than at the end of 2007 – although two lenders expected a rise (from 5.75% to 6% in one case, and from 6.25% to 6.75% in the other). One respondent expected rates to be unchanged at 6%. On average, IMLA members expected base rate to fall from 6.03% in December 2007 to 5.58% one year later.

Peter Williams says: “There is some divergence of opinion, but lenders are basically sanguine regarding the interest rate environment. Overall, they expect the Bank of England to implement one more rate rise, to 6% by year-end, and then they should start to come down. The good news for consumers is that by the end of next year, intermediary lenders expect rates to be at a lower level than they are now, and house price inflation will have cooled significantly.”