In preparing their recent report on long term trends in the housing market, the Centre for Economics and Business Research (CEBR) have revisited estimates of household wealth tied up in the housing market and considered the implications for mortgage equity withdrawal.

• A key conclusion is that the recent increase in housing wealth that has already taken place in the past 6 years is so massive that mortgage equity withdrawal is likely to take place on a substantial scale for some time to come.

In 1998 UK households owned residential property valued at £1,504,925,000,000 - that is £1.5 trillion. By the end of this year estimates show that the value will have risen by 78% to £2.68 trillion.

Even though CEBR forecast relative stabilisation in the housing market for the next 3 years or so, unless something is done to increase the supply of property, the value of housing wealth will rise to around £7 trillion by 2020.

After another record year of mortgage equity withdrawal this year, household residential property will have increased in value this year alone by £256 billion against an increase in borrowing secured against housing of around £86 billion. And last year houses owned by private individuals increased in value by £368 billion while borrowing against them increased by only £78 billion.

• The key point is that the increase in the value of the housing stock is so huge that even after two consecutive years of record mortgage equity withdrawal, most UK households are much wealthier.

CEBR said: “It is because of our detailed analysis of housing wealth that we have concluded that mortgage equity withdrawal is likely to be here to stay.”

“It may slow a little in 2004 and 2005, when we expect the UK housing market to be rather flatter than today but even then we expect that mortgage equity withdrawal will run at over £40 billion a year compared with the record £53 billion we estimate for 2003.”

“This year mortgage equity withdrawal will be worth 7.7% of consumer spending and even in 2005 we expect it to be worth 5.9%.”

Clearly a collapse in house prices could change all this. But while population pressure, low rates of house building and low interest rates remain, a collapse in house prices seems only likely if it is preceded by a further period of rapid price rises. We think a soft landing more likely.

Details of these forecasts are contained in CEBR’s latest report on the housing market, ‘Housing Futures 2023’, available from hcarless@cebr.com