Stagnant market expected in 2011

That is the view of Spicerhaart’s 2011 market forecast which shows the potential for very slight growth. Rising inflation, linked to the higher cost of living, is predicted to drive interest rates up by at least 0.25% per quarter from the end of Q2, finishing the year on 1.25%.

Nationally, house prices will fall in the first half of the year, according to the estate agents, largely recovering in H2 to show little growth by the end of 2011. Upward pressure from the shortage of homes and the moribund construction industry will be counterbalanced with downward pressure from the lack of mortgage finance and affordability issues.

Commenting, Alison Beech, business relationship director at Spicerhaart, said: “Assuming the financial contagion from the Greek and Irish economies doesn't spread, I see the possibility for minor growth next year. Although I don't expect there to be a double dip in the UK economy, I am less confident on this than before due to the many factors outside the Government's control, such as in the Eurozone or US economy, which could easily tip the balance.

“Lending will remain hugely constrained for those who do need to move house and many homeowners will hold off applying for mortgages in the first place, paralysed by fear of the rising cost of living and falling household income. The gap between the housing markets of the South East and the rest of the country is set to become even more pronounced, exacerbated by foreign buyers and city bonuses.”

Spicerhaart believes gross mortgage lending for 2011 will be virtually flat against 2010 at circa £135 to £140 billion, as liquidity remains an issue. If interest rates do begin to tick upwards as predicted, this would have a positive impact on remortgage volumes as those on tracker rates move to fixed rate deals. However, many borrowers won't necessarily look to switch immediately as rates are likely to creep up slowly.

The requirement for banks and building societies to repay the £165bn Bank of England Special Liquidity Scheme in 2011 will further subdue gross lending, as will the Basel III balance sheet requirements, and the Mortgage Market Review will only add to lender caution.

Steve Cox, operations director at Spicerhaart Financial Services, said: "Lending criteria will remain tight as lenders focus on repairing their balance sheets, with a few more 90% LTV products becoming available, albeit with tight credit criteria, but little chance of a return of 95% loans during 2011. However, some innovation aimed at first-time buyers, young professionals and families with a lack of equity who need to move, is expected as the main players fight for an adequate tranche of market share.

"We are likely to see a strong buy-to-let market next year. This will be driven by an increase in the proportion of potential first-time buyers who are unable to save for a deposit and homeowners voluntarily selling up because of affordability, coupled with new build stock and social housing failing to keep up with demand. The private rented sector will take up the slack as a longer term housing solution for many."