It has been a positive month in terms of banking sector results. It was heartening to hear that many of the big players have turned the corner and are reversing losses made over recent years. I like to think that the banking sector is a good barometer of how the wider economy will perform, although I am an eternal optimist.
One of the main reasons for the upturn is not a significant growth in banking activity unfortunately. It is reported to be the result of deliberately aggressive writedowns that the banks took last year on impairments proving to be not quite as bad as earlier feared. There has been a broad benefit from a decline in provisions for toxic loans for the sector which originally set aside £35bn for bad debts.
Where does this leave this leave the mortgage sector right now? On balance, a severe shortage in new properties being built will underpin the value of the housing stock and, I hope, prevent a double dip in house prices. I expect house prices to remain fairly flat this year, although the number of properties now coming on the market could potentially affect that prediction.
The Centre for Economics and Business says the lack of housebuilding means property price growth will slow in the latter half of 2010 but they expect an annual increase of 4 per cent in average values by the end of the year which is more bullish than my own prediction.
Its forecast claims that rising unemployment on the back of public sector cutbacks will hit house price inflation in 2011 before it bounces back due to the shortage of new housebuilding, resulting in a 5 per cent rise in 2012 and a further 4 per cent rise in 2014.
The CEBR said property price doomsayers are wrong to predict a further sharp contraction of house prices is on the cards following modest falls in prices in recent months and that they are ignoring the fundamentals of the market.
I think low interest rates will continue to stimulate demand for housing while supply is likely to remain tight and help drive prices upwards a little. This will then be offset by the general doom and gloom that persists, not least in the public sector which is gearing for significant cutbacks.
Financial advisers are feeling bullish, forecasting a 7.2 per cent quarter-on-quarter rise in mortgage business during the third quarter, according to Paragon Mortgages. Interestingly, this is the sixth consecutive quarter that brokers have predicted increased business levels.
Moneyfacts says the number of deals on offer has risen by 66 per cent this year from 1,414 in January to 2,351 now. However, 58 per cent of deals available still require a down payment of at least 25 per cent of the value of the property.
The sooner we see a resurgence of higher loan to value mortgages the better, although I would be happy to see that capped at 90 per cent, which is a fair balance between supporting potential first-time homeowners financially and shielding them from the negative equity trap.
Sally Laker is managing director of Mortgage Intelligence and Mortgage Next.