Letter: Good news at the top, but house prices remain low

Sir: Anne Spackman argues that the recent gloom in the housing market has been overstated, in part reflecting the building societies' desire to influence government policy. She points out that the house price indices of the Nationwide and Halifax exclude those houses without a mortgage, which are concentrated at the top of the market and where prices are rising. To a point, this is true.

However, official Department of Environment figures on housing turnover, which include all housing transactions, also show the housing market slowing down. In 1993, housing turnover recorded an average quarterly rise of 5 per cent, in the three months to April turnover was actually lower than in the three months to January. Moreover, given that the Department of Environment estimates that its figures actually lag behind activity in the market by a month, there could be worse to come. The Association of Corporate Estate Agents reported a sharp drop in turnover in April, and net lending commitments, for both the banks and the building societies, were also markedly lower.

The rise in the cost of fixed- rate mortgages and the squeeze on real income from the tax increases are two substantial blows to the housing market. The decision by the Halifax, UBS and others to lower their house forecasts in the light of the recent weakness of the market should be seen only as a realistic reassessment of the trend in house prices.

Yours sincerely,

JAMES BARTY

Senior UK Economist,

Morgan Grenfell

London, EC2

9 June