CML news & views

The ‘great housing debate’ produced a considerable amount of agreement between the five participants – despite current market uncertainty. All predicted lower lending for house purchase in current market conditions, with Michael Coogan arguing that a reduced appetite for risk among lenders could help sustain remortgaging. Given current uncertainty, the CML is not now planning to revise its market forecasts until later in the year. 

Speaking at the debate, which was chaired by John Wriglesworth, Nationwide chief economist Fionnuala Earley agreed with Michael Coogan’s view of the broad direction of the market. In November, Nationwide’s central forecast was for house prices to be broadly flat this year. Since then, however, the market had been affected by some of the downside risks that Nationwide had identified at the time it made its forecasts. There were now therefore stronger reasons to expect prices to be at the lower end of its forecast range, with a correction of perhaps 4% this year. 

Hometrack research director Richard Donnell also predicted a “small correction,” as well as a reduced number of transactions. Former BBC economics editor Evan Davis kept to the forecast he made at the beginning of 2008 that prices would fall by between 5% and 10% this year. More pessimistic was Morgan Stanley chief economist David Miles, who thought prices could decline by 20% over two years. But that could be “good news” for first-time buyers in the long run, he believed. 

A key determinant of housing market developments will be the health of the wider economy. But the panellists agreed that, while growth would slow, there would be no recession. More likely were cuts in discretionary spending by consumers, increased saving and a small rise in unemployment. But there would no be large increase in forced house sales. 

On assistance for first-time buyers, Michael Coogan shared the concerns of David Miles and Fionnuala Earley that help for key workers created market distortions. The reality is, however, that the schemes are so small that this effect will be limited.  All the panellists believed that affordability problems for first-time buyers would persist, with many forced to continue renting into their 30s. Richard Donnell argued that the problems were compounded by a shortage of suitable property. Three-quarters of dwellings were family homes, with one-bedroom flats comprising just 3% of the supply of housing.

On buy-to-let, the consensus was that the market would be sustained by strong demand for rented accommodation, but there would be no significant increase in new acquisitions by investors. Continuing migration and the affordability problems for first-time buyers would help underpin the rental market. Meanwhile, high transactions costs would deter investors from dipping in and out of the market in response to short-term fluctuations in the prospects for capital growth.

Perhaps not surprisingly, no-one predicted any significant increase in housing supply, despite the government’s ambitious targets to improve it. On top of the inability to build enough homes, the panellists identified a number of other supply issues, including an over-supply of two-bedroom flats and the strategies of house-building firms.