Britain's largest mortgage lender, Halifax, upgraded its 2007 forecast for house price growth from 4 to 6 per cent yesterday, claiming a combination of greater economic momentum and a more acute supply shortage than it had expected was likely to fuel stronger performance than it had originally forecast.
However, the bank said growth of 6 per cent would still be one of the smallest rises in UK house prices since 1995, and would be well below the long-term average of 8 per cent a year, which the British housing market has achieved since 1983. Last year, prices rose 11 per cent.
The bank added that while it had upgraded its forecast, this was mainly due to stronger performance during the first half of the year. "Whilst house price growth was stronger than expected during the early months of 2007, there are now more signs that the market is slowing," said Martin Ellis, Halifax's chief economist. "We expect this trend to continue. House price inflation should ease over the second half of the year."
Nationwide, which runs a rival house price index, said it was maintaining its slightly higher forecast of between 5 and 8 per cent growth for the current year.
Halifax's upgrade came as the Council of Mortgage Lending reported another record month of lending in June, with gross mortgage advances hitting £34.2bn, up from £31.4bn in May. However, figures from the British Bankers' Association revealed that the rise in mortgage lending was below trend, suggesting the effects of four interest rate rises between August 2006 and May this year may have been starting to have an effect on the mortgage market. Interest rates rose again two weeks ago at the start of July, and are now at a six year high of 5.75 per cent.
Howard Archer, chief UK and European Economist at Global Insight, said the data added to the overall evidence that house prices are "coming off the boil".
"It does appear overall that the housing market is now losing momentum as demand is increasingly pressurised by the rising affordability pressures stemming from higher interest rates, modest real disposable income growth and elevated house prices," he said.
"There remains a very strong possibility that interest rates will reach 6 per cent before the end of the year, which is likely to act as a significant deterrent to many potential house buyers."
The housing figures emerged as Bank of England governor Mervyn King said that he expected consumer price inflation to continue falling over the rest of the year. Mr King said: "We have to look through the short-term volatility caused by gas and electricity prices ... in our view, inflation will come down during the rest of the year. It is likely to drop further but we will have to wait and see."Reuse content