Alliance & Leicester predicts slowdown in house prices

Alliance & Leicester, the mortgage bank, today said it expected a slowdown in house prices this year, but played down fears of a crash.

"We expect single figure increases in average house prices and a slowing lending market this year, although that may mask house price decreases in some localised areas," said Richard Pym, A&L's chief executive, as the firm announced strong 2002 results.

Mr Pym's comments followed a report yesterday from the Royal Institution of Chartered Surveyors (RICS). The report said that the housing market lost speed for the fourth month in a row during January and warned of further price falls ahead. The Bank of England has said that it believes that house price inflation, which hit 25% last year, is past its peak and expects prices to stop rising in two years. A&L echoed the Bank's sentiments.

"I don't think there will be a crash and our mortgage arrears are down 27%, but we are cautious on prices in the south east, where prices have risen the most in recent years and we cautious on the economy in general," Mr Pym said.

Thanks to the buoyant housing market, A&L reported an 18% jump in profits to ?468m for last year. Profits for 2002 compared to ?396m for 2001 and exceeded City expectations of ?456m. The bank lent ?6.4bn in new mortgages last year, a record for the firm, bringing its market share to 2.9%.

A&L raised its total dividend for 2002 by 10% to 39.9p per share and said it achieved ?20m in savings, by reducing advertising spending and other expenses, leaving it with a further ?8m to cut from its costs this year. The bank has a target of slashing ?100m in costs that stood at ?650m in 2000, though cost savings will not involve any compulsory redundancies this year, said Mr Pym.

A&L was down 1.9% at 767.6p in late morning trading.