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By Donia O'Loughlin | Published Dec 06, 2012

Halifax: ‘Subdued’ economic growth constrains housing demand

Subdued economic growth, sustained high levels of unemployment and ongoing pressures on household finances will all continue to constrain housing demand, Halifax has said in its 2013 outlook.

Martin Ellis, housing economist at Halifax, said the fiscal tightening programme, combined with many families continuing to seek to reduce their debts, is likely to significantly curb households’ ability and willingness, to spend. However, the relatively low level of mortgage payments in relation to income continues to provide support for house prices.

According to Halifax’s outlook for 2013, payments for a new borrower remain significantly below the long-term average as a proportion of disposable earnings at 26 per cent in the third quarter of 2012 compared to a peak of 48 per cent in 2007.

Mr Ellis said: “This support from the favourable affordability position for both those who already have a mortgage and those who are able to raise the required deposit to buy a home should remain largely unchanged in 2013 with the Bank of England bank rate expected to remain at its current level of 0.5 per cent throughout next year.”

He added that the Funding for Lending Scheme is helping to reduce mortgages rates with the average mortgage rate on new mortgages falling in recent months. However, he warned that conditions will continue to remain tough for first-time buyers with “no radical change” in their circumstances expected.

Mr Ellis said: “As a result, the numbers of first-time buyers are likely to remain low by historical standards.

“The constraints on potential first-time buyers’ ability to purchase their own homes will contribute to strong demand for private rented accommodation, maintaining upward pressure on rents. Increasing rental incomes, together with few alternative investment opportunities providing attractive returns, will probably result in further growth in the buy-to-let sector.”

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