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DUFFY on Mortgages

In August, I strike a meaningful wager with our technical director that base rate had peaked for the year at 4.75 per cent. Something to be smug about you might think. Yet I am not.

Mervyn King&#39s unsolicited and now infamous after dinner remark regarding the housing market will come to define his tenure as Governor of the Bank Of England.

It deliberately applied the brakes to a runaway market but I wonder how comfortable he feels about things eight weeks on.

The factory output figures for August featured a third consecutive drop in output and was the biggest fall in two years. Inflation is now dangerously low and, if unstimulated, this will make the allegedly omnipotent Gordon Brown look rather daft in 2005 when there now appears to be little prospect of his 3.5 per cent growth prediction becoming reality.

The pouring of fuel (or rather the $55 price per gallon of it) on this fire is further course for concern. Rampant oil price inflation is not unlike interest inflation. The impact takes four months to filter through to Joe Public&#39s doormat but when it does, watch out.

Fuel is at the fulcrum of our daily lives and with winter now upon us, the ramifications extend far beyond on mere petrol or air travel expenses. Central heating, hot water, cooking. It is all going to cost more for the foreseeable future.

Where am I going with all this? Well clearly, these trends are bad news for our industry. The property markets lifeblood is confidence. Yes we can all still continue to remortgage the intestines out of our loanbook but a dearth of buyers means many brokerages will do well just to stand still over the next 12 months.

The implications for lenders in 2005 are even starker. Many will finish 2004 having achieved less than 85 per cent of their budgets. Regulation and its understated distraction costs will mean that several will enter the new year in a gung-ho mood. Lenders will need to be innovative as well as brave and follow GMAC&#39s line. A total of £8.3 bn in securitisation over the last six years means that they are not hamstrung by their balance sheet. “We need a big first quarter” will be the boardroom mantra.

These are favourable portents for brokers and the January sales at Mortgages R Us will break all records with nil-margin products in proliferation. I envisage a chronically oversupplied market – and at a time when a spring general election will no doubt invoke that typically British and ludicrous consumer reaction – paralysis. Not withstanding party political promises on stamp duty and IHT reform, why should the election of Blair, Howard, Kennedy or KilroySilk (!) put the handbrake on homeowner activity?

But just you wait. The whole electoral circus will bring the buyer market to a halt and as UK motorway behaviour testifies we are in everyway a nation of gawkers and rubberneckers.

A £280bn market will condense down to £250bn. My instinct also tells me that a Blair victory by a significantly reduced majority will continue to encourage our citizens to look at property and retirement overseas.

Anyone who knows me will vouch that my glass is always more than half full but I am convinced that next year is going to be a year for doing the fundamentals well and accepting that mirroring your 2004 performance may well come to represent a real achievement. And on this wager I am certainly happy to take on any punters who feel otherwise.

Kevin Duffy is managing director of Hamptons International Mortgages

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