Iraq jitters blamed for homebuyers' fall in confidence

Uncertainties over an impending war with Iraq have dealt a blow to homebuyers' confidence and willingness to borrow, a leading mortgage bank said yesterday.

Woolwich said the number of people who expect house prices to rise over the coming months dropped to 53 per cent in February from January's 55 per cent.

Over the same period there was an 8 per cent fall in the volume of new mortgage lending by customers of the Woolwich and its parent, Barclays Bank, it said.

The figures came as separate research said the number of first-time buyers – a key support for house prices – had fallen by half since its peak.

Woolwich said its survey, which was based on an NOP poll of 1,000 people, showed that confidence had fallen despite last month's surprise cut in interest rates.

The largest fall in confidence was in London and the South-east where prices have risen to such high levels that there are now fears of a property crash in the South of England.

Gross mortgage lending dropped from £19.4bn to £17.9bn, although this was still 34 per cent above the level in February 2002.

Andy Gray, the head of lending at Woolwich, said confidence has fallen consistently since it hit an all-time high in May last year. "This is a cooling rather than a collapsing market," he said. "Global events can play a major part in impacting individual sectors of the economy and the housing market is not immune to wider uncertainty."

Mr Gray said low mortgages rates – currently at their cheapest for half a century – would sustain continued growth.

Central banks on both sides of the Atlantic have cut interest rates savagely in an attempt to encourage consumers to spend and borrow and offset the scale of the slump in the business sector.

But there is growing evidence that consumers in the UK and the US are growing more pessimistic about the economy and their own finances.

A UK optimism index plunged to a four-year low last month as the threat of military action against Iraq raised concerns about the effect of war on the economy. Yesterday US consumer confidence fell to the lowest level in more than a decade as war fears and oil prices depressed sentiment, according to the respected University of Michigan index.

Meanwhile Halifax, the UK's largest mortgage lender, said the number of first-time buyers entering the market was falling.

It said just 526,000 buyers took the first step on to the property ladder last year, compared with 779,000 in 1983 and a peak of 961,000 in 1986.