House Prices in 2007

Previous predictions

At the start of 2006 most commentators on the UK housing market were forecasting low nominal growth in house prices over the year. This followed predictions for 2005 of falling house prices which proved to be unfounded, a pattern which was repeated in 2006 when house price growth was once again stronger than pundits forecast.

2007 Predictions

The consensus is that house prices will rise by around 6.0% in 2007. Many of the forecasts point out that the first half is likely to be more buoyant than the second, as affordability constraints begin to bind. Lombard Street Research are the most bullish with a prediction of a 10 to 15% rise, based on the considerable momentum observed in the market going into 2007 and a belief that affordability is not yet overstretched as interest rates are relatively low.

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Moneyfacts data misleading

Research undertaken by the BBC and Moneyfacts last month suggested that banks and building societies are quicker to pass rises in interest rates on to their borrowers than their savers following a rise in the Bank Rate. However, this is misleading as the research mixes mortgage rates offered to new customers with the saving rates available to existing customers.

Instead, when the mortgage and saving rates that apply to existing customers are compared, the evidence suggests that in most cases customers are being treated fairly. Overall, 24% of institutions raised their saving rates before their mortgage rates, to the benefit of existing customers, and 54% changed the rates simultaneously. Only at 22% of institutions were the mortgage rates for existing customers changed before the saving rates, and in several of these cases the lag was only a few days.

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N&P first to get Basel go ahead

Norwich and Peterborough Building Society (N&P) was the first financial services firms to get the go ahead from the Financial Services Authority (FSA) to use its own statistical models to calculate capital requirements (or reserves) to be held against lending activities. This allows firms greater flexibility whilst maintaining adequate capital reserves to keep member’s money safe.

Matthew Bullock, chief executive of N&P, said: “We are proud to be the first firm in the UK to have applied for this advanced capital status and are delighted to be the first to be given approval to use internal models. We will do so from 1st January 2007.”

The legislation, known as the Capital Requirements Directive or “Basel 2”, was initially designed for large, internationally active banks and governs how much capital all banks and building societies must hold to protect their members (for banks, their shareholders).

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Societies fill the gap of bank branch closures

While news of more banks closing branches hit the headlines in January, two building societies announced their intention to open branches.

Yorkshire Building Society has announced a commitment to open 15 new branches in the next three years or so. Geographical locations are in the process of being identified but the decision is based on a desire to expand on the existing national network of 131 branches currently run by the Society.

The Skipton Building Society also intends to open branches and is currently in talks for a number of locations, mainly in Skipton’s heartland, but also further afield. At this stage the society is not putting a specific number on how many branches the society will open; the priority is to make sure the location is exactly right.

BSA MEDIA RELEASE, 11 January 2007

Commenting on the decision by the MPC to raise the Bank of England’s Bank Rate, the BSA’s Director-General Adrian Coles said;

“This rate rise may come as a shock to consumers, but the message from the BSA is don’t panic. Over half (53%) of mortgages held with building societies will be protected from this rise, as they are fixed rate loans.“