Doomsayers raise ghosts of '92, but optimists say housing is set to turn the corner

Fewer loan completions and falling prices - the UK housing market seems to have got what it wished for.

Fewer loan completions and falling prices - the UK housing market seems to have got what it wished for.

As industry bodies released reports suggesting interest rate rises during the past 12 months had, as intended, put the brakes on the property market, mortgage brokers stressed that this was not cause for alarm.

"People have been saying for ages that the market must slow down. Now that it is doing so, there is no reason to panic," says David Hollingworth of mortgage broker London & Country.

The number of completed home loans fell for the third month in a row, according to figures from the Council of Mortgage Lenders (CML). At 90,000, they were down 9 per cent on September. The figures showed, too, that first-time buyers made up a higher proportion of the overall number of purchasers.

Rather than being down to a welcome surge in activity by first-timers, however, the statistics reflected a sharp decline in the number of existing homeowners making a move.

Michael Coogan, the director-general of the CML, says its data is "in line with other indicators suggesting interest-rate rises have had their desired effect".

Elliot Nathan, an adviser at mortgage broker Charcol, echoes the views of others in the industry when he says there is no reason to react in an "over-dramatic" way. "For the first time in five years, we have been in an increasing interest-rate environment and it has clearly been a dominant issue for consumers, who have been wary of moving on to or up the property ladder."

Like many others, Mr Nathan is now "almost certain" a peak has been reached in the current interest rate cycle at 4.75 per cent. "I would expect to see lending figures improve during the course of 2005," he says.

With five rate rises since October 2003, many housing market analysts, lenders, estate agents and mortgage brokers believe that the increased cost of borrowing has successfully dampened activity in the housing market. But the Bank of England's Monetary Policy Committee (MPC), which meets every month to decide on interest rates, must now tread carefully, says David Bitner, the head of product operations at Bradford & Bingley.

"Lending is likely to continue to fall as we approach the traditionally quiet Christmas period," he says. "And this year the market will be further [slowed] by mortgage regulation, which has severely disrupted applications."

If the cycle has indeed peaked, the prospect of falling rates is likely to create a few sparks, and could provide a fillip in the new year, says Ray Boulger, Charcol's technical director. "Mortgages are to become more affordable over the coming months."

Borrowers with a £150,000 repayment mortgage on a variable rate will have seen their payments rise by £120 a month during the past 12 months, he says.

Worse, for those with the same size mortgage but making interest-only repayments instead, the bill will have risen by £160. "However, with fixed-rate deals falling and base rates likely to follow, it appears that this trend is about to be reversed," he adds.

Mr Hollingworth agrees and says that borrowers should expect to see more competitive rates coming on to the market in the next few months.

The brokers' optimism is in marked contrast to a survey last week from the Royal Institution of Chartered Surveyors (Rics) which cast a dark cloud over the property market.

It revealed not only that the number of surveyors reporting a drop in house prices now outweighed those recording a rise, but that this disparity was at its most pronounced for 12 years.

In 1992, the UK housing market was in the grip of a recession during which thousands of homeowners suffered negative equity as the slump in house prices pushed the value of their homes below the amount outstanding on their mortgages.

The Rics report says that its surveyors noted house price falls in every region across the UK, with the exception of Scotland. Southern England, it reported, had suffered in particular.

Ten days ago, Mervyn King, the Governor of the Bank of England, warned that prices were expected to fall, albeit "modestly".

His comments were seized on by some industry commentators, who saw it as evidence that the UK housing market was set for rather more turbulence than had been expected in the projections for a "soft landing" (where prices rise more slowly instead of falling).

The picture is set to become clearer with the publication during the next 10 days of house price surveys from Nationwide building society and the Halifax.

With Christmas on the way, many expect to see further signs of the market slowing as buyers delay making any move until the new year.

"There's less activity during this period, usually because people are busy spending money for the festive season," says Mr Hollingworth.

He believes the crunch time will come in March and April, with spring typically heralding a burst of activity.