Halifax optimism on prices disputed

BY JOHN WILLCOCK

Financial Correspondent

Halifax Building Society is forecasting flat house prices this year, a 4 per cent rise next year and an 8 per cent rise in 1997, but even this conservative estimate is being branded as over-optimistic by analysts.

Halifax chairman Jon Foulds, announcing 1994 profits up 13 per cent to £975m, said 1995 would be another difficult year for the mortgage and savings market.

Halifax, which is Britain's biggest building society, hinted it had firm fall-back plans up its sleeve should the group's £10bn merger with Leeds Permanent be ruled illegal.

The current plan is before the High Court, with a decision expected next Monday on whether more than 2.5 million borrowers will be able to share in the free shares handout.

Mr Foulds and chief executive Mike Blackburn would not be drawn on details but said a court upset would not derail the deal. Halifax would either appeal or draw up an alternative payout plan "within weeks", Mr Blackburn said.

Meanwhile, house prices would be held down by the Government's proposals to cut mortgage payment benefits, tax increases and rising interest rates, Mr Foulds said.

"We think 1995 will be another flat year in the housing market. We have to see increases in volumes before an increase in prices. There was a very modest increase in volumes last year. One can begin to hope that in 1996 or 1997 there will be rather better conditions in the market," he said.

Hugh Pye, an analyst at BZW, said that while Halifax's results were "pretty robust" and its proposed merger with Leeds was sensible, the house price forecasts looked extremely optimistic.

Halifax also forecast that net new mortgage lending would rise from £18bn in 1994 to £19bn this year, £23bn in 1996, £29bn in 1997 and £32bn in 1998. This last figure would take lending back to the heights of 1990, which Mr Pye thought unlikely.

Halifax has 19 per cent of the home loans market and financed 208,000 house moves last year, according to Mr Foulds.

He said there would be no "share option bonanza" for top management following the flotation. Directors' salaries were already in line with the market, so there would be no big rises there either. "The reasons driving the merger have nothing to do with lining the pockets of the senior management."

He added that he had "no philosophical objections to share options".