House price boom is over, survey of homeowners finds

The threat of higher interest rates next year has cowed many homeowners into expecting stable house prices during 2004, according to the annual survey by Woolwich, the mortgage arm of Barclays bank. But they are more optimistic than professional economists that interest rates will rise slowly during the next two years.

The survey shows that 56 per cent of respondents expect house prices to be unchanged or rise by no more than 5 per cent next year. A year ago, 43 per cent made that prediction, but the actual out-turn is expected to be a 15 per cent increase for 2003. At the same time 9 per cent predict house prices will fall next year, against the expectation of 13 per cent a year ago.

Andy Gray, the head of mortgages at Woolwich, said: "Consumers believe that 2004 will be a more stable year for house prices. The massive fluctuations we have seen are beginning to even out as inflation drops in line with consumer confidence in the economy as a whole. This is good news for the housing market as it will continue to inject a sense of realism about the future. And it is particularly good news for first-time buyers, who will not see prices spiralling further beyond their reach."

But while many experts predict that the Bank of England base rate could jump from 3.75 per cent to 5 per cent in 2004, the homeowner survey comes up with a prediction of 4.25 per cent by the end of 2004, and still only 4.75 per cent a year after that. Not surprisingly, respondents thought that total mortgage lending would rise by only 5 per cent, from an estimated £270bn for this year to £285bn in 2004. A year ago the figure was £219bn.

But there are wide regional differences. Nearly a third of homeowners in Scotland and the South-east of England think house prices will rise by more than 5 per cent. But fewer than a fifth of their compatriots in the North-east share this view, despite the boom in that part of the country this year. Mr Gray added: "People in the North-east have been dizzied by the heady rate of house price inflation and believe that the euphoria cannot continue into the new year. This has led them to be more realistic about the prospects for the market in the new year."