Buyers tread warily as housing boom 'hits peak

The housing boom has reached its peak, with property prices set to rise by little more than the rate of inflation in 2002 and 2003, according to figures issued yesterday.

The Council of Mortgage Lenders, which issued the data, has also radically revised its prediction for house price growth this year after effectively admitting that the market's strong performance had caught it by surprise.

Its prognosis was endorsed by a new report from the Royal Institution of Chartered Surveyors, which said that high house prices and fears of job losses were likely to put people off buying property.

In April the CML, whose members are banks and building societies, predicted that house prices would rise by 5% next year and 6% in 2003, but yesterday it revised this to 3% in both years to take account of the expected slower economic growth next year.

It also increased its forecast for house price growth this year from 5% to 11% in the light of the property market's "unexpectedly strong growth".

The CML said housing market growth in the next two years could be even lower than 3% a year if the global economic downturn proves to be more severe than expected, if the value of sterling falls sufficiently to cause inflationary pressure and higher interest rates, or if consumer confidence falls away more sharply than anticipated.

"The good news is that households are in a strong position to cope with any deterioration in the UK economy. If house prices rise more slowly this will help to improve affordability further for first-time buyers," said Michael Coogan, director general of the mortgage lending body.

In its latest report, RICS said house prices in England and Wales continued to rise during the three months to the end of July as demand outstripped supply. But spokesman Ian Perry added: "There are real signs coming from the marketplace that the boom may have reached its peak. Many chartered surveyors are reporting a levelling-off in prices, some even a downturn in inquiries."

The August quarter-point interest rate cut had given the market a small boost but high prices and the fear of job losses if the recession in manufacturing spreads to other areas of the economy were likely to put people off buying.