The housing market is set to stage a mild recovery next year, boosted by Government tax cuts and continuing falls in interest rates, the Halifax Building Society predicted yesterday.
House prices will go up by about 2 per cent, with further increases of 5 per cent in each of the following years. Sales should also rise by about 10 per cent, recovering from the sharp drop suffered in 1995.
The picture could be even rosier, with the prospect of a mini-boom taking place in two years' time, the Halifax report claimed. "We believe the worst is now over and the real recovery is about to begin," it said.
The society's prediction follows a dismal year for the housing market, in which both prices and sales collapsed to new lows. In October, the amount lent by societies - pounds 295m - fell to its lowest level since the Conservatives took office in 1979.
Sales, which help lubricate the market, also fell dramatically, reaching levels not seen since the start of the latest housing recession in 1992- 93. Meanwhile, the number of mortgages greater than the value of their homes - negative equity - rose to 1.5 million. Hopes of a revival, first touted in 1994, came to nought as the market slid into a double-dip recession.
Halifax's report yesterday admitted that earlier forecasts of a recovery in 1995 were wrong. It said: "The second downturn was not expected but the reasons are now clear. First, there was a reduction in Government help for homeowners.
"We continued to see the withdrawal of subsidies with the further reduction of mortgage tax relief to 15 per cent and the announcement in the 1994 Budget of cutbacks in income support for mortgage interest payments.
"Secondly, despite interest rates falling to historically low levels in nominal terms, inflation, and in particular house price inflation, also fell, leaving rates high in real terms. In addition, most people did not expect interest rates to remain low in nominal terms.
"As late as early 1995, expectations in the City were for base rates to rise backwards towards 10 per cent. There can be little doubt that these worries were also felt by borrowers."
Continuing low consumer confidence, job insecurity and tax increase added to the misery, the report added.
However, most of these factors are now being turned round, opening the way for a minor revival, which it hoped the Government would not move to choke off. "We hope the Government would see no particular wider problems with this - a one-off correction following years of weakness.''Reuse content