Housing market recovery could peak inside two years, say lenders

There is plenty of potential for further housing market recovery without any danger of a “runaway” market, according to lenders.

The Council of Mortgage Lenders, which is predicting mortgage lending to rise by a fifth next year to its highest level since 2008, said the “housing market revival over the short term seems assured”.

It admits that this time a year ago it had not anticipated the revival of this last 12 months, calling it a “truly remarkable transformation in household sentiment”.

This year, it is forecasting just over 1m housing transactions, with 1.14m next year.

However, it warns that the market peak could come as early as next year, or the year after.

The CML says: “The upwards leg of the housing market may be relatively short-lived and property transactions and house price growth may peak over our 2014-2015 forecast period.”

One reason why the CML does not think there will be a runaway market is because mortgage rules take effect next April. Central to the Mortgage Market Review (MMR) changes are new affordability rules.

These will mean that lenders must assess borrowers’ overall income and outgoings, and judge whether the borrower will be able to afford to repay the mortgage, allowing for interest rate rises and living costs.

The CML says: “We do not expect the brakes to slam on from next April … [but] there might be some wobbles.”

It goes on: “The new affordability rules are designed to lean against the irrational exuberance that has characterised previous housing market booms, and we should expect them to help prevent a full-blown housing boom.”

Another reason for the CML’s caution is that it does not have high expectations about the Help to Buy mortgage guarantee scheme, believing that volumes of business written under the scheme “may turn out to be relatively modest”.

However, the CML does concede: “The scheme clearly has some potential to stimulate demand and so add to upwards short-term pressure on house prices.”