House prices will continue to rise, say lenders

Mortgage lenders today said they expected to see further house price rises over the next two years, following unexpectedly high levels of activity in the housing market in recent months.

The Council of Mortgage Lenders (CML) has revised up its forecast for price rises this year to 4% and predicted that they will rise by 2% annually over the next two years.

It said it had been "unduly pessimistic" when, earlier this year, it said it expected house prices to drift downwards in the second part of this year, then remain static until 2007, and that the indications were that the market had stabilised and may be on its way up.

The CML also revised its forecasts for lending. It said that although it expected the number of property sales to decline from 1.23m in 2004 to 970,000 this year and 920,000 in 2006 and 2007, the high number of remortgages would ensure that gross lending remained buoyant.

It forecast gross lending of £275bn in 2006 and 2007, down only slightly from the £280bn expected this year and the record £291bn in 2004.

However, the organisation said it did not expect a new surge in house prices or market activity. These, it said, would be constrained by affordability problems, the fact that interest rates look to remain unchanged for some time and the slowdown in the economy.

Since August's cut in interest rates, the housing market appears to have picked up, with most of the main price indices recording an increase in prices during the autumn.

Mortgage lending has also recovered after a quiet start to the year, with September and October seeing a borrowing boom and, according to surveyors, an increase in enquiries from new borrowers.