Most forecasts are for a modest increase in base rates to about 3% between 2010 and 2011, with some commentators such as Capital Economics suggesting there will be no significant increase for the next five years. Mounting Government pressure on lenders to reduce margins, along with gradually increasing competition, will be the catalyst for maintaining affordability. This will keep payable mortgage rates suppressed for several years, said Assetz, rejecting claims that mortgages are due to become less affordable in the short-term and medium term.
Lenders will face even more pressure to bring in more competitive deals once all the main house price indices start showing positive annual growth – something Assetz predicts will come to fruition as early as the end of 2009.
The current imbalance between pent up demand for homes and available stock is so severe, said Assetz that any increase in private seller supply was unlikely to have any significant impact and it was unlikely that sellers will return to the market overnight following a modest housing recovery. It is far more likely that there will be gradual increases in numbers of sellers as the market improves which would not cause a sudden rush of stock availability that could push down prices.
New home building is set to remain subdued for the foreseeable future, further reducing any prospect of the market being flooded with property and consequently driving up prices.
It has also been predicted that unemployment will surge and this will bring many more distressed sales to the market. It is becoming clear that the private sector is reaching the end of its job reduction phase and the question mark now remains more on the public sector – however job reductions here are not expected for at least a year, well after next year’s election, at a time the market is likely to be even stronger. The most recent figures from ONS how that the growth in unemployment is already slowing.
Stuart Law, Chief Executive of Assetz, said: "Lenders are still resisting the market’s natural buoyancy with strict lending criteria ruling out thousands of sensible borrowers, but this will not continue forever. As soon as they are confident that the housing market is making a sustained recovery and the risks are diminishing, they will move to offer more attractive products to borrowers. I expect this to happen within three months of the major house price indices moving into positive growth, which means improving lending terms in the first quarter of next year.
"Base rates will eventually start to rise, probably in the second half of 2010, but the re-emergence of a competitive mortgage market will prevent the devastating increase in costs in real terms being predicted by many commentators. We have seen existing mortgage holders benefit with a lower rate payable on their variable rate mortgages or revert at the end of the fixed rate period to a lower rate of variable interest.
"There is an expectation that recent house price strength will bring a flood of sellers to the market, almost overnight, but any increase is likely to be balanced out the large number of buyers now looking to make their move. Overall I expect it to be a steady and well balanced process, with the net supply of re-sale property increasing only in-line with gradual improvements in house building."
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