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Mortgage View: A matter of confidence

Rics reports can often be inconclusive barometers of the housing market. As we all start to strategise (or pray) about what 2006 holds, last week’s news about rising buyer enquiries was encouraging but I remain sanguine about next year’s market nonetheless and am forecasting a loan market of 250bn. Here’s why.

There is no doubt that some are of the portents are favourable. Foremost of these is the prospect of a base rate cut perhaps in February. Second, lenders appear to be steadily emancipating their underwriting doctrines via affordability-based models which should continue to enhance loan supply. TMW is a worthy case in point.

More good news will come in January when the City bonus season starts. Hamptons’ city-based location affords it an up close and personal preview of what such bonuses are likely to be and I can tell you that the recent reporting of the City fund manager buying his missus a 1m diamond will not be the last incidence of largesse we read about before the spring.

Finally, on the reasons to be cheerful front, there is the Rics report which, given the recent experiences of our own agency business, I can corroborate. Demand is indeed healthy and there are signs that some vendors are finally starting to accept that what the professional and scrupulous agents have been telling them for 18 months is true – that prices have stabilised so there is no benefit in hanging on much longer. Why the bah humbug mood, I sense you ask. Well, as heartening as all the above might sound, there are still several cautionary factors at play.

The first of these is the C word. Not credit, not consumer debt levels but confidence. Prodigious City bonuses should not mask the fact that in more universal terms, Britons are spending less these days on retail goods and lifestyle upgrades. Confidence is the single most metabolic ingredient for the property food chain. To my mind, it remains in overdraft.

Second, speculation about a rate cut is fascinating. I am not convinced it will be as early as February for a number of reasons . If Ian McCaskill is right and we are in for a prolonged cold snap, then fuel bills are going to bite hard and may provoke strains on household and trans-port budgets. That in turn stimulates credit card and personal loan borrowing which the Government is trying to discourage.

Then there is the Government itself. Whether it is a lame duck or not, I sense that clear decision making will become a rarity and having a Chancellor (come foreign secretary of late) being more motivated about moving next door himself could have a high distraction cost. No 4 per cent stamp duty for Gordon.

Finally, many of the fundamental problems facing the UK property market will not be solved by this administration. FTBs will remain frustrated because stamp duty legislation will see no repeal and a chronic housing shortage will not be resolved while green belt development remains a topically sensitive issue.

All this has pale consequences for mortgage practitioners. In lender, intermediary, packager and network sectors, there is already over-supply. Another year like 2005 and businesses which successfully kept the subject of consolidation off their agendas will be unable to support themselves without some form of rationalisation taking place.

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