CML forecasts 7 per cent rise in house prices

Angela Faherty

June 10, 2006

The CML stated its belief that house prices would rise by 7 per cent in 2006, revised up from its original figure, published in February, of 2 per cent.

It also forecast property sales to be above its February predictions, with 1.2 million transactions expected, instead of 970,000.

However, the CML warned a more buoyant market would impact on interest rates and housing inflation, with both also predicted to rise further than before.

Jim Cunningham, senior economist at the CML, said: “The immediate signs are that demand will remain robust over the next few months. But confidence and activity are closely associated with interest rate movements and expectations.”

The CML predicted house price inflation would end next year on 3 per cent, instead of 2 per cent, while the interest rate was predicted to end 2006 at 4.75 per cent.

Also expected to rise as a consequence were arrears (130,000 up from 120,000) and repossessions (15,000 up from 12,000).

However, the upward revision of these figures is down to the increased activity in the housing market, with the body’s members expecting to lend £310 million gross this year, instead of the £285 million predicted.

John Willcock, head of products at Norwich & Peterborough Building Society, said: “The housing market is flying at the moment and consumer confidence in the housing market is much greater at the moment than the equity market. Our average loan size has markedly increased this year and is a reflection of the house prices people are being forced to pay.

“We are not anticipating more debt but I think this is a reflection of the good book that we keep, rather than the wider market. We believe a 0.25 per cent rise in Base Rate will happen at some point but any more than that could damage the market.”

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