Housing market recovery remains fragile

DIANE COYLE

Economics Correspondent

The weak state of the housing market has been reflected in recent figures on new housing starts and mortgage borrowing. The hopes for its recovery lie in house prices and mortgage rate cuts since the end of November.

Housing starts have been weak for the past six months, running at levels about 15 per cent lower than a year earlier. Net mortgage borrowing fell an alarming 22 per cent to just over pounds 15bn between 1994 and 1995. The British Bankers' Association, announcing its year-end figures, called it ``a dismal year for the housing market''.

Even more troubling was the apparent weakening in borrowing towards the end of last year. Lending for house purchase declined through last year and new approvals fell back in December.

Adrian Coles, director general of the Building Societies Association observed: ``The recovery in the housing market will not be characterised by uninterrupted month by month improvements.'' However, he said that the trough of the market had been passed.

Confidence that a recovery is on its way rests partly on recent reductions in the cost of borrowing. The main lenders cut mortgage rates immediately after last November's budget and also after the quarter point reduction in base rates in December. Mortgage rates are now at their lowest for a generation.

Modest house price increases form the second fragile green shoot of recovery. According to the Halifax Building Society, prices rose in January for the sixth month in a row. However, the increase during the month was only 0.1 per cent, and the average price was 1.2 per cent lower than a year earlier.

The Halifax said its optimism about a modest increase in house prices in 1996 was ``tinged with caution.''

The Nationwide, Britain's third-biggest mortgage lender, predicted that this year will bring a revival in the housing market. Its index showed prices flat in December, with the year-on-year pace of decline beginning to slow.

Different game plans: in and out of the housing roller-coaster

Joe Dwyer

Consolidating his position as Britain's biggest housebuilder is a huge gamble on returning inflation, analysts said yesterday. Replacing the land used up by an estimated 12,000 houses a year and expanding abroad will create an enormous cash drain. "Watch out for the next rights issue" warned one broker. Share verdict: Down 5p to 135p.

Neville Simms

A bold promise that earnings will not be diluted this year puts the spotlight on cost reductions. Expect draconian job cuts and a drive to lift selling prices to ensure Tarmac keeps its promise to the City. The deal solves a worrying exposure to housing and the UK, creates a better balanced group and a healthier cash flow. Share verdict: Up 2.5p to 120.5p.

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