Halifax sees house prices soaring 16%

Halifax, the UK's largest mortgage lender, yesterday doubled its forecast for house price growth this year to 16 per cent but said a slowdown was already under way.

Halifax, the UK's largest mortgage lender, yesterday doubled its forecast for house price growth this year to 16 per cent but said a slowdown was already under way.

This would be a slowdown from the current levels of 20 per cent but Halifax said it did not expect any falls in prices before the end of the year.

The bank said a revision was inevitable after recording a 9 per cent rise in the first five months alone. "Reality has caught up with our forecasts," said Martin Ellis, its chief economist.

The group said high levels of employment and historically low interest rates had boosted demand for property, which, combined with a shortage of homes for sale, had led to high price rises.

But it said it still expected the market to slow during the second half of the year as the cumulative effect of four interest rate rises began to bite and first-time buyers faced increasing problems getting on to the property ladder. It added that the number of mortgages approved for house purchases slowed in April, while recent surveys from estate agents reported a fall in enquiries from buyers and a reduction in the number of sales agreed.

"We expect the annual rate of house price inflation to fall from its current 20 per cent to 16 per cent by the end of the year," Mr Ellis said. "This month's interest rate rise signalled a change in tactics by the Bank of England and is likely to increase the effectiveness of efforts to cool consumer spending growth and the housing market.

"The rise in base rates from 3.5 per cent to 4.5 per cent since November should act as a brake on housing demand, causing house price growth to begin to slow over the coming months."

Halifax said there was evidence the market was cooling, pointing to a decline in the number of mortgage applications and falls in new enquiries to estate agents.

Last week Mervyn King, the Governor of the Bank of England, said the risk of a crash had risen. But Mr Ellis said: "The market is well underpinned by a strong labour market and the fact that interest rates are at historically low levels. I don't expect there will be a spike in interest rates or a big downturn in the labour market."

He was supported by a report from Standard and Poor's, the credit rating agency, which said the mortgage market was "still favourable". "Standard and Poor's still expects the slowdown in the market to be orderly but there is a risk of a sharper-than-expected correction, which could be linked to a more general decline in the UK household economic confidence," said Michelle Brennan, its credit analyst.