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MONDAY 11TH JULY 2005
 NO CLEAR DOWNWARD PATTERN IN UK PRICES

Housing market conditions remain challenging, but the UK is likely to experience a relatively flat market for some time, the Council of Mortgage Lenders said in its market commentary last week.

The CML said annual house price inflation stood at five percent for the 12 months to June 2005, its lowest level since 2001, but month-by-month changes in prices showed no clear downward pattern.

With fears of interest rate increases having subsided and households relatively optimistic about their future personal finances, house prices and activity are set to stabilise close to current levels.

The indications from estate agents and surveyors are that house price weakness is likely to persist for some while. Hometrack’s June survey notes that it continues to be a buyer’s market, and suggests that the discounting of asking prices and longer sale times will persist for as long as there is over-supply. RICS reported the weakest net balance of surveyors reporting price increases since late 1992. Meanwhile, the latest Rightmove data, based on asking prices, suggests that annual house price inflation is heading towards a broadly static picture for the second half.

Although year-on-year comparisons continue to look poor, that is in part a reflection of exceptionally buoyant conditions last year, and the underlying position seem to be one of activity stabilising at lower levels.

Bank of England data has indicated a steady increase in loans for house purchase approvals throughout 2005, and gross and net lending - £22.4 billion and £8 billion respectively - show a similar picture, according to the CML.

The future of the housing market and the wider economy are closely linked, said the CML, pointing to a weakening in the manufacturing sector, a dip in consumer confidence over future job prospects, and a drop in the volume of retails sales, as factors that could affect the market over coming months.

However, following the decision by the MPC to keep interest rates on hold, the CML says that expectations will now quickly shift to their next meeting in August. "The timing of any rate cut remains far from certain and will depend upon clearer evidence of the UK facing a deeper or more widespread downward correction," concluded the report.
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