15-11-2010

Lenders Acknowledge ‘Recovery’ In Market

The total of £14.7bn was the highest level of lending since October 2008. However, Bank of England figures show the rise in borrowing has not been mirrored among small businesses.

Price forecasts. The pick-up in mortgage lending has been in evidence during the spring and summer months. Gross lending for the second quarter of the year reached an estimated £42bn, the CML said. This was up 24% on the previous three months, and the highest level since the end of 2008.

"Improvements in the cost and availability of mortgage credit are underpinning a meaningful recovery in the housing market," said CML chief economist Bob Pannell. "Current positive trends are set to continue for the immediate future."

However, Mr Pannell pointed out that the increased activity did not mark a return to a housing boom similar to that seen in the last decade. "Although the underlying pace of first-time buyer activity is approaching a quarter of a million per year, it is worth bearing in mind that this is still barely half of activity rates a decade earlier, and so far below what might be considered normal levels," he said.

This view was echoed by analysts, who said that that economic climate was putting the brakes on a runaway market. While the lending numbers are the strongest they have been since 2008, this will be a long, slow recovery. Much ground has been lost and lending levels are running at a fraction of what they were at the height of the housing boom.

Government schemes such as Funding for Lending and Help to Buy have put some life in the housing market. They have also prompted Savills estate agents to amend their house price forecast. It believes that property values will increase by 3.5% this year, compared with its previous forecast of no change, and will go up by 4.5% next year, instead of a predicted 1.5% rise. Their longer term prediction is that UK house prices should rise by an average of 18.1 per cent by the end of 2017.

"A combination of low interest rates and stimulus measures means there is capacity for improved price growth over the next three years or so," said Lucian Cook, director of Savills residential research. "But it comes at the price of later price growth in 2016/17 when interest rates are expected to start rising”.

A more extreme view is that house prices in England will soar by 42% by 2020 and rents will rise by even more, according to a report from the National Housing Federation which warns of the "colossal strain" facing the generation born in the 1990s.

Many will remain trapped in their parents' homes as property prices continue to outstrip earnings, warns the NHF. It forecasts that 3.7 million young people will be living with their parents by 2020, as the rate of housebuilding fails to keep up with the rising population.

The report claims that by 2020 the price of a first-time buyer's home will increase by 42% to £245,165; whilst wages for 22- to 29-year-olds are predicted to increase by 36% by 2020. The report fears that this poses a huge challenge for those wishing to be homeowners. “Low-earning young people would have to spend 16 times their average wage just to buy a home".

Rents will be driven even higher as young adults are priced out of the property market. "NHF research shows that private rents are likely to be broadly stable through 2013, but could increase sharply, by about 6% a year, between 2015 and 2020 as interest rates and house prices rise. In 2020, rents are expected to be 46% higher than today. But when the new flood of young adults born in the noughties starts university or a new job, they could push rents even higher in a country already chronically short of decent housing."

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