Housing market fundementals remain strong
The Intermediary Mortgage Lenders’ Association (IMLA) is warning that a surfeit of negative housing and mortgage market predictions for 2008 could begin a cycle of deteriorating confidence in the housing market.
The IMLA’s Executive Director, Peter Williams, believes that while the latest Bank of England Credit Conditions survey presents a mixed picture, it does contain positive elements.
Mr Williams explains that: “Demand for secured loans has remained buoyant, and indeed demand for buy-to-let and other (non-prime) loans actually exceeded expectations overall”.
He suggests that “despite the uncertainty of the credit squeeze and the consistently negative tone of the media, British consumers are still confident enough to want to borrow, partly because they take a longer term view.”
This argument is supported by a recent survey of leading economists by the Financial Times.
Of the 55 economists questioned, only 13 saw the UK housing market as a major risk to economic stability in 2008.
Only ten thought a house price correction might exceed 10%; and ten predicted that the correction would severely impact upon the broader economy.
Mr Williams believes that last week’s reduction in three-month Libor will allow conditions in the money markets to ease over the next few months and that this, “combined with the potential for further intervention by the Bank and a base rate cut … should begin to see the cost of borrowing stabilise and fall – which in turn will help the underlying demand for borrowing.”
Finally, he states that “What we are seeing is a correction from record levels of lending and the underlying fundamentals of this market remain very strong.”