Britain’s homeowners have significantly changed their opinions about the housing market since last winter says Barclays mortgage arm, the Woolwich.

The findings of research undertaken by the Woolwich in December reveal that UK homeowners believe that 2004 will see house prices stabilise, with 56 per cent of Britons believing house prices will stay the same or rise by no more than five per cent in the next 12 months.

People's opinions are less extreme than when the same research was undertaken last year:

• In 2003 43 per cent believed house prices would stay the same or rise by no more than five per cent. In 2004 this is 56 per cent.
• In 2003 32 per cent expected increases greater than five per cent with nearly 10 per cent of these expecting increases of 15 per cent or more. In 2004 26 per cent expect increases of greater than five per cent (a drop of six per cent) and only two per cent expect increases over 15 per cent.
• In 2003 13 per cent expected a decrease in property prices. In 2004 nine per cent expect a decrease.

Andy Gray, head of mortgages at The Woolwich, says: "Consumers clearly believe that 2004 will be a much more stable year for house prices than previous years.”

“The massive fluctuations we have seen are beginning to even out as inflation drops in line with consumer confidence in the economy as a whole. This is good news for the housing market in general, as it will continue to inject a sense of realism about the future. And it is particularly good news for first time buyers, who will not see prices spiralling further beyond their reach."

Woolwich housing market outlook for 2004

• Interest rates will be 4.25 per cent by the end of 2004 and 4.75% by end of 2005.
• House price inflation will be around five per cent by the end of 2004.
• Gross lending in the UK is expected to remain at high levels and grow by a further five per cent to £285bn by the end of 2004.

Regional outlook

Confidence regionally has shown that during 2003 consumers have been more confident about increases in house prices in the North than the South, and this has followed through in house price inflation which has grown more in the North than the South.

• 58 per cent believed house prices would increase in the North compared to 55 per cent in the Midlands and 54 per cent in the South.

When consumers were questioned about how much they expect house prices to increase by in 2004 it revealed that across the country the greatest optimism resides in the South East and Scotland. 30% of homeowners in these regions think that prices will rise by more than 5% in 2004, followed by the North West (27%) and Yorkshire and the Humber (27%). The least optimistic regions are the North East (18%), where house prices this year enjoyed record growth, and Wales (23%).

Andy Gray adds, "People in the North East have been dizzied by the heady rate of house price inflation and believe that the euphoria cannot continue into the new year. Like their counterparts in the South last year this has lead them to be more realistic about the prospects for the market in the new year and believe that the current rate of house price growth cannot continue."

Review of 2003 and general outlook for 2004

The Woolwich annual housing market indicator shows that UK consumer confidence in the housing market has decreased by seven per cent from an average of 62 per cent in 2002 to 55 per cent in 2003. This downward trend of confidence has been reflected in the annual rate of house price inflation, which has steadily fallen throughout 2003 to around 15 per cent.

Consumers are still generally confident about the housing market but clearly believe that 2004 will be a much more stable year and this combines with economic fundamentals that support a decline in the rate of house price inflation:

• House price growth has been better than many pundits expected during 2003 but still the rate of house price growth almost halved demonstrating that the market is stabilising and will continue to stabilise slowly.
• Interest rate rises will lead to consumers having to tighten their belts slightly as we expect the Bank of England to increase interest rates a couple of times next year.
• Consumers are likely to be under further pressure with tax burdens, i.e. council tax increases. This is something which may well continue as the government's finances go on deteriorating. This pressure on what consumers actually take home after tax is likely to make consumers think about taking on further debt.
• First time buyers share of new mortgages has fallen sharply. This alone suggests that less first time buyers are getting on the property ladder and this is likely to slow even more during 2004. This will impact the middle and higher ends of the property market causing house price inflation to slow.
• Finally, household debt to income ratio is now well above its previous peak at the end of the 1980s. The debt as a percentage of household wealth is also not far off the level it reached in that period, suggesting households spending may be coming under some strain. In such circumstances, it would be unwise to ignore the effects that debt burdens will have on house prices.

Review of gross mortgage lending

UK Gross mortgage lending increased to record levels to an estimated £270bn in 2003 from £219bn at the end of 2002, this marks an increase of 23 per cent. Overall mortgage lending will continue to remain strong during 2004 growing by around five per cent to £285bn by the end of 2004.