House prices will fall for the next five years, a think tank has predicted.
The National Institute of Economic and Social Research says prospects for the housing market are 'very weak indeed' and that the slump will be the longest period of falling house prices yet seen.
It is predicting house price falls of 4.5% this year and 10.5% by the end of 2015, indicating that actual falls would be greater once inflation is factored in.
Another economic think tank, Capitall Economics, said the Institute's forecasts were still too optimistic. Paul Diggle said: "The housing market is not going anywhere at the moment. We think the housing market has considerably further to fall. Prices are over-valued to the tune of 20%." He said the 'yawning gap' between house prices and earnings needs to be closed by falling property prices.
Meanwhile, lending rose less than expected in March, the Bank of England said this week, as lenders continued to exercise the equivalent of a financial hosepipe ban.
Its data showed that growth in net unsecured consumer lending slowed to £0.1bn in March, well below the £0.45bn increase that had been forecast. Net mortgage lending also rose less than expected, with a £0.4bn increase.Mortgage approvals were, however, up, and at 47,557 in March, were the highest number since November.
But even this was a little less than the 48,000 predicted and down on the figure for March 2010, when the number was 48,967.
The number of remortgages approved fell to 32,116 from 35,567, though that was a 23% increase on March 2010.Meanwhile, the latest figures from the Land Registry reveal that the average house price in England and Wales now stands at £160,996, an annual price decrease of 2.3% and a monthly fall of 1.1%.
High annual falls in house prices outside London – for instance, 9.1% in Stoke on Trent and 10.9% in north-east Lincolnshire – were countered by 0.8% growth in London. In Blaenau, Gwent, prices have fallen by over 19% in the year.
Even in London, the house price figure is distinctly patchy: in Islington, house prices have risen 7.7% between March 2010 and March 2011, but in Bexley, they have fallen 2.3%, and between February and March this year, house prices in Hackney fell 1.8%.
The latest data for transactions goes up to only January and shows that between last October and January, transaction volumes averaged 51,548 per month – a decrease from the year before, when monthly volumes were 60,284.
Paul Hunt, managing director of Phoebus Software, which supplies the mortgage industry, said of the Bank of England’s lending figures: “It’s a relief to see mortgage lending increase at all, but the £400m rise is only half what would be expected if lending remained at its six-month average.
“In truth, the mortgage market is flourishing as much as the wilting gardens of south-east England. Lenders are showing a stubborn reluctance to lift the financial hosepipe ban and there seems little prospect of this changing before the full impact of the threats of growing unemployment and rising interest rates is known.
“We must hope as the year progresses that continuing economic growth convinces lenders to open the taps – otherwise what is currently a semi-arid lending market could become a desert.”
Of the Land Registry data, Hunt was equally downbeat, saying: “House prices are now at their lowest level since November 2009 and are only 5% higher than the four-year low seen in April 2009. What’s more, the speed of the drop is increasing.
“This was the largest monthly fall for two years and could be an indicator that the difficulty of obtaining mortgage finance is beginning to have a pronounced impact on property prices.
“It seems that the post-recession recovery in the property market is now over, and until lenders are prepared to increase the risks they take with borrowers, there seems little likelihood that prices will recover.”
