Hometrack has announced its forecasts for the housing and mortgage markets. Weaker market sentiment, stretched affordability levels and changes in the lending sector are set to result in a pronounced slowdown in the rate of house price inflation and mortgage lending over 2008.

While acknowledging there are pockets of risk in both the housing and mortgage sectors, these are expected to remain contained with limited adverse implications for the broader housing and mortgage markets.

Prospects for the housing market.
"Housing market conditions have certainly turned over the last few months driven by affordability levels hitting a 15 year high and a weakening in market confidence. Affordability levels are stretched on most measures and a combination of rising incomes, slower house price growth and falling interest rates are expected to 'unwind' affordability levels to a more sustainable level," adds Richard Donnell.

"We do not anticipate widespread house price falls due to what we see as some major supply side constraints. Firstly, there is little evidence of any major increase in the supply of homes coming to the market for sale and this is acting as a support to prices. It is a trend that we expect to continue for the next 12 months, especially given our projections for a 17% fall in transaction volumes.

"Despite signs of falling demand and weaker market confidence the reality is that the majority of households simply do not need to sell their home. We estimate that only a quarter of sales each year are by households who actually need to sell. While changes in the mortgage market are likely to result in an increase in needs based sales, we do not believe that there will be sufficient numbers of these households to result in year on year falls in the headline rate of house price inflation.

You can read more of the Hometrack Forecast here

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Michele Andrew
Editor of Square Foot Magazine