Mortgage lenders and housing analysts yesterday abandoned hopes of a serious housing market recovery in 1996, predicting instead that prices will not rise above the rate of inflation.
Despite expectations of a 10 per cent increase in transactions next year, the market is not poised for a dramatic recovery until at least the following year.
Their comments came as Halifax Building Society yesterday announced record profits of pounds 517m in the six months to the end of July, up 6 per cent on the same time last year.
They also followed the latest crop of lenders, including Woolwich Building Society yesterday, which said they too would cut the headline cost of loans to borrowers to 7.99 per cent.
Continuing competition in the housing market this year played a role in Halifax's reduced share of mortgage lending in the six months to July.
The society, which had achieved a market share of 19 per cent in 1994, lost ground, winning 14 per cent of net lending in the first half of this year. Halifax's share of outstanding loans is 16 per cent.
Gary Marsh, a senior manager at the Halifax , said: "If you have a big loan book you will be vulnerable to a slight decline in market share when competition is tight.
"We have not tried to poach other customers with re-mortgage packages. But we will be unveiling a range of mortgage products for existing borrowers very soon."
He added that Halifax did not expect to see house prices rise beyond inflation levels next year.
"In the long term, all the fundamentals are there. Every study shows an annual rise of 170,000 in the number of households, similar to the 1970s and early 1980s.
"Conversely, there will be continued and increasing planning restrictions, where new house building is concerned." The society expects the number of transactions to recover to 1.3 million in 1996, similar to levels recorded last year and 10 per cent up on 1995.
Halifax's profits increase came despite gloom in the housing market. Its 550-strong estate agency chain suffered pounds 4m pre-tax losses, compared with a pounds 2 loss for the entire previous 12 months.
But the society's savings balances grew by pounds 3.3bn, giving it a 19 per cent share of new personal savings this year.
Halifax is warning its members, including those who joined as part of its merger with Leeds Permanent, that they should keep at least pounds 100 in their accounts between now and late 1996 if they want to share in the pounds 8bn-plus de-mutualisation payout.
Rob Thomas, an analyst at UBS, said the past week's rate reductions would not do much to help kick-start the recovery.
"It may be that it will play a small psychological part in the sense that it will remove one small fear - that of high interest rates - that some prospective buyers might have," Mr Thomas said.
"But the main purpose of the cuts has been that of defending individual lenders' market share against some of the re-mortgage offers now available."
Mr Thomas said that his prediction earlier this year of a 6 per cent rise in house prices for 1996 would probably be revised to 2-3 per cent. After that the market might grow more strongly.
"Things have not been too bad on the economic front over the past few years and if the economy continues to recover then a revival in the housing market is possible.
"The past year has suffered a series of shocks that put the market right back down, such as the cuts in mortgage interest relief and the benefit cuts for those who become unemployed. But next year, the prospect is more likely to be one of tax cuts."
He also predicted tougher competition for some telephone-based lenders which, unlike building societies, are forced to borrow money on the wholesale markets.
Direct Line, the telephone insurer that offers mortgages at 7.42 per cent, would find it difficult to emulate Bradford & Bingley's telephone service, which reduced rates yesterday to 6.95 per cent.
A Direct Line spokeswoman said yesterday that the company was reviewing its existing rate and expected to make an announcement soon.