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Last Updated: Monday, 24 May, 2004, 11:43 GMT 12:43 UK
House prices set for more growth
A house for sale
House prices are continuing to rise
House prices will continue to rise this year before moving into a "more pronounced" slowdown in 2005, the Council of Mortgage Lenders (CML) says.

The CML raised its forecast for 2004 house price inflation to around 14%, from 8%.

Despite the rise, the CML said it was sticking to its central expectation for a "gentle slowdown" in growth.

UK interest rates will probably end this year at 5.25%, but house prices are not set for a crash, the CML said.

House prices have been booming, helped by interest rates at lows last seen in the 1950s.

Risk assessment

CML director general Michael Coogan predicted interest rates were likely to peak in the region of 5.5% to 6% over the next two years.

Last month, the Bank of England raised interest rates by a quarter percentage point to 4.25%, the third increase in the cost of borrowing since November 2003.

Separately, Mr Coogan rejected a report in the Sunday Telegraph that quoted him as saying that interest rates would have to double in order to avoid the property market spiralling out of control

In its assessment of risks, the CML said "our simulations suggest that interest rates would have to more than double to take house price growth below double digits in the very short term".

However, it said such a move was "neither likely or desirable".

Prices affordable

"Nothing dramatic is expected to happen in terms of interest rates," Mr Coogan said.

"We expect over time that house-price inflation will come back down, but it won't necessarily be in the next 18 months," he said.

He said house prices would remain generally affordable because the UK economy is buoyant, unemployment is low and inflation is under control.

The housing market has grown hugely, with a 30% rise in prices in 2002, followed by a 15% rise in 2003.

But the CML said it expected first-time buyer numbers to stabilise at "fairly low" levels because of ongoing affordability concerns.




WATCH AND LISTEN
The BBC's James Blatch
"An eventual lack of first-time buyers could lead to a collapse in the market"



SEE ALSO:
House prices rising 1,100 a week
17 May 04  |  Business
Bank hints at future rate rises
12 May 04  |  Business


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