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Demand 'fuelled 2006 boom'

6th February 2007 | back to article listings BACK    print this article PRINT

The strength of demand was the key feature in the health of last year's UK property market, claims the Council of Mortgage Lenders (CML).

Although there has been much media coverage of the three interest rate rises in the space of six months and the plight of first-time buyers in the media, the CML maintains that the strength of demand was the defining factor in the 2006 booming housing market.

Mortgages taken out by movers jumped by 13 per cent and loans to first-time buyers increased by around 12 per cent on a year ago, demonstrating the fervent urge of many consumers to move up the rungs of the housing ladder.

With demand being so high, some commentators have claimed that the impact of interest rate rises has been rendered largely impotent as consumers will resort to increasingly desperate lengths to buy a home, irrespective of the cost.

Research by the council found that first-time buyers, while suffering from affordability issues, were turning to the 'bank of mum and dad' to secure extra funding for their first homes, thus assuaging the effect of tightened finances.

Furthermore, boosted by the increase in immigration last year, especially from Eastern Europe, there has been more demand for rental properties, encouraging even novice investors to become a part of the lucrative buy-to-let market.

Some 13 per cent of loans, up from 11 per cent in 2005, were taken out by buy-to-let investors, illustrating the continuing growth in this, relatively young, sector of the market.

In a statement, the CML said that the omens are positive for the market as investors anticipate the coming 12 months.

"Going forward, we anticipate that the housing and mortgage markets will remain in good shape during 2007. As noted, the economic backdrop is expected to remain strong and the Bank of England forecasts that the economy will grow by around three per cent this year.

"While the three 0.25 per cent interest rate rises we have seen recently may take some of the heat out of the market, underlying factors such as steady earnings growth, high levels of employment and investor demand should continue to act as supports.

"Household growth shows no signs of slowing and coupled with a shortage of supply, house prices look set to grow."

As such, the council is predicting growth of seven per cent for 2007, broadly in line with the majority of forecasters who expect the average property to accumulate in value by four to eight per cent.

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