Consumer confidence suggests house price decline

16 May 2003
Consumer confidence in the housing market suggests that house price growth is set to decline steadily over the coming months, according to new research by The Woolwich.

The mortgage lender has mapped consumer confidence in the housing market against house price inflation and discovered that confidence in the housing market provides a key indicator on future trends in house price inflation

The Woolwich explains that a rise or fall in confidence in the housing market will take time before it is seen to impact actual house price inflation and so proves a useful indicator of decline or growth in the market.

The data used by the Woolwich has been plotted six months into the future to give a clearer picture of the impact of consumer confidence on house prices. The research shows that, while confidence has fallen consistently since it reached a high of 68 per cent in May last year, in April falling confidence stabilised at 51 per cent due to an increased optimism fuelled by a 'Baghdad Bounce' as uncertainty surrounding events in Iraq declined. Confidence actually rose from 50 per cent in March.

However, The Woolwich predicts that confidence will now slowly decline for the rest of the year.

Andy Gray, head of mortgages for The Woolwich, said, 'We believe that the house price inflation will slow steadily as weaker earnings growth, lower bonus payments, and higher household taxes means that people, particularly in the South East, simply cannot afford to chase house prices higher.

'In the north where house prices have not risen as dramatically as in the South there is some headroom for continued house price growth.

'However, it is becoming increasingly important that people realise they cannot rely on the fact that their property's value is going to continue to increase at the double digit rates we have seen recently. In particular, homeowners should look at long term sustainability and affordability when using equity gains in their homes to fund other expenditure.'

Meanwhile, UK mortgage lending increased from £19.5bn in March to an estimated £21.5bn for April, which marks an increase of 10 per cent. Overall mortgage lending continues to remain strong as remortgaging continues to drive the mortgage market.

The Woolwich expect lending volumes to remain high year on year as people continue to remortgage to take advantage of historically low and competitive interest rates.