House price rises are expected to slow or even reverse next year, according to mortgage lenders and brokers – as reports of higher property values encourage more sellers into the market, but the availability of home loans fails to keep pace.
This week, the FT house price index showed that house prices in England and Wales rose for a sixth consecutive month in October, by 0.7 per centand are now at levels last seen in September 2006. Statistics released earlier in the week by the Communities and Local Government department showed that in quarter to the end of September, price rises accelerated to 3.1 per cent, compared with 0.3 per cent in the previous period. .
Mortgage lenders’ own data show similar trends. Nationwide’s house price index also recorded a sixth month of rises in October, of 0.4 per cent – giving the first year-on-year increase since March 2008. Halifax’s index showed a stronger October rise of 1.2 per cent.
However, mortgage brokers warn that limited financing options for borrowers with small deposits will put a brake on further rises.
“Savills predicts that property prices will fall again as more properties become available but the availability of mortgage finance doesn’t become any easier,” said Melanie Bien, director of Savills Private Finance.
“With the potential for lenders to become even stricter when assessing affordability next year, the situation could become even more tricky for borrowers.”
Forecasts issued yesterday by the Council of Mortgage Lenders suggest that lending will rise only moderately, from £141bn this year to £150bn in 2010 – limiting any increase in house sales from 810,000 to 850,000. Michael Coogan, CML director-general, said: “It is difficult to see the case for a dramatic upturn in the absence of significant improvement in the wider economic picture. There is a risk that public spending cuts and higher taxes could choke off recovery. We remain cautious about market prospects.”
Brokers said that house sales are unlikely to take off while lenders restrict mortgages for those seeking a loan-to-value of more than 75 per cent. “As more property comes to market, we could therefore see that the continued thin availability of mortgage finance leads to more borrowers being refused loans at a high enough LTV to complete the purchase,” said David Hollingworth of London & Country.
