Mortgage approval rates reached another record increase - at the same time as a report declares strong housing inflation for 2007.

Mortgage approval rates increased by £6.5 billion in November - a record monthly record score - according to the British Bankers’ Association.

And Lombard Street Research - which posted one of the most on-target predictions for 2006 - has reported that they see property prices rising up to 15% in 2007.

Lombard Street Research had previously predicted a figure of 10% over the UK for 2006, while other analysts expected stagnation, or even a fall.

Meanwhile, the Nationwide has already predicted a 7% increase for 2007.

Lombard Street Research states that high mortgage approval rates, and short supply of property, will continue to force house inflation up through 2007.

This is regardless of interest rate rises, which have been widely seen as too little too late to put the brakes on the property market.

Additionally, they stated that there was unlikely to be a property bubble unless current growth continued as is into 2008.

This is in stark contrast to the US property market which has similarly boomed - but now stagnated.

House builder Wimpey has already warned investors that it has written down £40 million in US assets, selling off land and suspending new development projects.

Overall, the UK property market has moved on despite the impact of a slowed US property market and continued uncertainty in the world economy.

However, though further interest rates look likely next year, existing homeowners are likely to continue to take advantage of generous remortaging offers to release home equity for new purchases - whether for family, or investment, purposes.

Indicators show that the UK property market is powering up again, despite the recent interest rate rise.

The Department for Communities and Local Government (DCLG) (formerly known as the Office for the Deputy Prime Minister - ODPM) announced this week that house prices across the UK have risen 6% to July, with the average house price now £194,454.

And this month the Nationwide and Halifax both reported that the housing market continues to develop strength in spite of the recent Bank of England interest rate rise.

This stands against a housing market that a year ago was seeing a controlled fall and a generally weakening property market.

This lead to speculation that the trend would continue into 2006 with only low-digit house-price inflation overall, with the property market stagnating in the second half of the year.

Instead, what we’re seeing is a gradual resurgence of the UK property market throughout the year.

And London - traditionally the trailblazer in property prices, is experiencing a boom that could see growth in the capital rise to double-digits towards the end of the year - a growth that traditionally ripples out across the UK.

However, the UK property market remains vulnerable - there are already signs that we could be entering an economic downturn.

Additionally, there are renewered concerns about the state of the US economy, which is seeing a slide in their property market, along with rising unemployment - all against a backgrop of heavy debt.

Any adverse economic conditions in the USA are likely to spread out globally, but it remains to be seen if even this threat will be enough to dampen the UK’s property market, which has otherwise prospered against all expectation.

Property prices in London have started going up again, pushing overall UK lending figures up on the month.

While it has been predicted already that house prices would see a small revival early 2006, few are optimistic that house prices will do anything but stagnate over the second half of this year.

It’s also worth noting that in the US, where a similar housing bubble has also formed along with the UK’s, there is a significant downturn in house sales.

And the European Commission is warning that the general housing bubble in Europe makes householders across the European Union susceptible to shocks.

A particular pressure on London is that, as the host of the 2012 Olympics, some investors may be pushing money into property there in the hope of reaping profits from the sporting event.

Speculation had already been rife that London house prices would increase due to the increased interest in overseas buyers.

Retail sales saw another fall last month according to the Office for National Statistics (ONS), continuing a trend in weak consumer spending.

In a year-on-year comparison, retail sales were down 0.9% on the same period in 2005.

The figures also co-incide with a slight rise in unemployment, and could finally signal the first real signs of a reverse in the economy.

Poor consumer spending with rising unemployment are going to put pressure on the Bank of England to lower interest rates.

The trouble there is that in doing so, the brakes will come off the UK housing market.

This could only lead to continued enlargement of what has almost certainly become an unsustainable investment bubble, resulting in further - and more difficult problems - in the mear to mid-term.

Conversely, inflation due to energy prices, plus slow but steady increases in earnings, are both going to create antigonistic pressures for a rise in interest rates.

Although market expectation has been that interest rates may be cut later in the year, around the summer and autumn, the Bank of England (as ever) will try to be slow to react after ponderously observing general trends before attempting to make safe decisions.

Data from the Land Registry has shown that house prices over 2005 grew at their lowest level since records began in 1995.

Meanwhile, the Halifax Building Society has reported a 0.5% fall in house prices for January.

However, the Nationwide claims that “seasonally adjusted” figures have the housing market as rising 1.4% over January.

The apparent confusion in how the UK property market is performing can be attributed to different sources have different data to determine their figures.

If housing inflation is effectively flat across the UK, then different data sets will likely show slight rises and falls, according to the different bias of data used.

However, the national figures cover up important variations across the UK, with Scotland and Northern Ireland still experiencing strong growth, while the South East is reportedly stagnant.

While lenders are trying to appear optimistic about the coming year, the inevitable fact remains that housing inflation has outstripped wage inflation. This means that affordability is a real problem for many ordinary domestic buyers.

Property being purchased for investment purposes is likely to remain significant for a while yet, and help roll the housing market along, even if at a slower rate. The problem here is that investors may be trying to keep expanding a bubble of their own making, on the basis of future expectations.

A small early renewal in price rises - followed by a period of stagnation for the rest of the year - appears to be the sum prediction for the housing market in 2006.

The Centre for Economics and Business Research (CEBR) has predicted an overall growth of 4.4% for the UK housing market, citing demand as still above supply.

This falls roughly in line with mortgage lenders, who are generally predicting a rise over 2006 of less than 5%.

However, Capital Economics remains sceptical, expecting small falls in the housing market by the end of 2006.

One thing CEBR and CE analysts agree on, though, is that 2007 is already looking a tough year, with economic uncertainties likely to significantly impact the housing market.

Gordon Brown sent mixed signals to the financial sector today, with announcements that residential property will not be eligible for SIPPs (Self Investment Pension Plans) - however, he still plans to open the UK property market to general investment via REITS with legislation in 2006.

The problem for the treasury on SIPPs is two-fold - firstly, in a runaway housing market that is killing first-time buyers, SIPPs with property threatens a future where people compound the issue by investing in second homes for pension provision.

Secondly, allowing tax relief on property investment could cost the Treasury as much as £4 billion, it is claimed.

However, investment in property will still be allowed via REITs, but only as part of general find-management. Tax rules and costs involved in converting to a REIT company are still uncertain.

According to the Nationwide, annual house price growth is continuing to slow, with a price rise of only 1.8% during the 12 months to September - the lowest increase since May 1996, and a further decline on August’s 2.3% growth.

However, the quarter-point interest rate cut to 4.5% in August might now be boosting the market. Nationwide recorded a 0.2% decline in house prices during September, the same as in August. The average cost of a UK property now stands at £156,517.

House price growth in the three months to September was 2.7% higher than the same three months a year ago.

Nationwide said that estate agents had reported increased buyer interest over the last few months.

Fionnuala Earley, group economist at Nationwide said: “Rather than seeing a rapid and significant correction in house prices as predicted by some, we are more likely to see a continuing smooth slowdown as lower price inflation attracts more demand, and thus liquidity, into the market.”

Nationwide expects house prices at the end of 2005 to be at the same level as at the beginning of the year, or at most rising by 2%.

There was a slowdown in house price growth in all regions of the UK, but price rises in the north continue to be higher than in the south.

The highest house price inflation was 11.4% in Northern Ireland. In the south-east and London, prices either increased by less than 1% or actually fell.

According to the Nationwide, house prices fell a seasonally adjusted 0.2% in August, with the average cost of a home at £157,310. Annual price growth fell to 2.3% from 2.6% in July, the lowest level for nine years. However, in the three months to August prices increased by 0.3%.

Nationwide said that prices were experiencing a “continued controlled slowdown”. Fionnuala Earley, Nationwide group economist said: “In spite of a fair deal of bearish comment, the housing market has remained quite resilient this year following last year’s interest rate hikes”.

The figures were in line with recent surveys from the Office of the Deputy Prime Minister (ODPM) and the Land Registry, both of which recorded a decline in annual house price inflation from almost 20% a year ago to approximately 5%.

According to Ms Earley, monthly purchase approvals were increasing and estate agents had noticed a willingness among sellers to adjust prices. These factors, together with a reduction in interest rates, had led to increased numbers of buyer enquiries and increased optimism about sales from estate agents.

Ms Earley warned, however, that the affordability of houses was still an issue, particularly among first time buyers. She said she expected the market to continue to cool in a “controlled fashion”.

Ed Stansfield, an analyst at Capital Economics said the figures were “no surprise” and supported “long standing anecdotal evidence” of a market slowdown. He suggested that the fall in prices in London and the South East was likely to spread across the country.

Research by the Joseph Rowntree Foundation (JRF) suggests that websites providing prospective house buyers with data on neighbourhood income levels and ethnicity, could increase segregation between poorer and more affluent neighbourhoods.

According to the charity, similar sites in the US had led to people on high incomes increasingly living in the same area, causing a fall in social cohesion.

Information available to UK househunters about neighbourhood characteristics is generally more limited than the information given on US property sites. In the US it is possible to search for the average income of a neighbourhood and see how ethnically diverse an area is. Similar information is now becoming more widely available in the UK on a postcode rather than neighbourhood basis. House buyers can check local crime rates and the performance of neighbourhood schools.

The JRF said that there was a danger that wealthy people would only choose to live in areas with other wealthy people. One social science theory is that having a mix of rich and poor in a neighbourhood will raises the living standards of the poorest people in the area.

Professor Roger Burrows, who led the JRF research team from the Universities of York and Durham, said: “While no one would want to prevent public access to neighbourhood information, we should recognise the potential implications for disadvantaged neighbourhoods and the people who live in them”.

According to a survey by mortgage lender Woolwich, confidence in the UK housing market remained static for the fourth month running in July. Less than 50% of homeowners expected the value of their property to increase over the next year, the same proportion as in April.

In July last year, 62% of the people questioned expected house price rises to rise.

The Woolwich said that it was not yet clear whether the recent cut in UK base rates would restore confidence and encourage more buyers into the market.

Homeowners in Scotland and the North East were the most optimistic of those surveyed, with 61% and 52% respectively forecasting rises. However only 43% of people in the East expected the value of their home to increase over the next year and 9% predicted a fall in property prices.

A survey by financial information group Moneyfacts found that the recent cut in interest rates had not yet been passed on to mortgage holders. Only 30 lenders had reduced their mortgage rates a week after the Bank of England reduced the base rate by 0.25% to 4.5%.

Approximately 75% of the 120 lenders in the UK had not decided whether to reduce the cost of borrowing, including Barclays, the Woolwich, Royal Bank of Scotland, NatWest and Bradford & Bingley.

Figure from the Land Registry show house prices growing at their weakest rate for almost ten years. Prices in England and Wales, for the three months to June 2005, were only 5.4% higher than at the same time last year, with an average price of £184,924. In the three months to June 2004, annual house prices grew 17%.

The Office of the Deputy Prime Minister (ODPM) said annual house price inflation was 5% in June, a significant decline from 6% in May. The ODPM said that annual house price growth was weakest in London and the south east.

The housing market in London showed slight growth, however, with house prices increasing 1.8% in the year to June, compared with a 1.6% increase in May.

All other parts of the UK recorded a decline in annual house price growth, according to the ODPM.

According to the Land Registry, the volume of property sales continued to decline with a drop of 27.7%. This was, however, an improvement on the first three months of the year when they fell 34.8%.

The figures show price growth in the UK at it weakest level since July to September 1996, when prices increased 5.2% to an average of £73,559.

Land Registry figures are based on completions rather than mortgage approvals and are, therefore, usually not as up to date as those of banks and building societies.

The government has acknowledged that new rules allowing the purchase of property through a pension will be inappropriate for most people.

Revenue and Customs, which is in charge of bringing in the new scheme, has said this type of investment, would only be realistic for those with the largest pension pots.

The rules will come into force in April 2006. Critics have warned that there should be more publicity about the scheme to minimise the risk of mis-buying.

The new rules will allow investors who buy residential property through a Self Invested Personal Pension (SIPP) to benefit from tax relief on money paid in.

The tax relief will be as high as 40% for higher rate taxpayers who make a contribution of £60,000 into their SIPP, giving them a £100,000 fund to spend on property. Neither rental income from the property or profit from the eventual sale of the property will be liable to tax.

Property pensions are expected to increase demand in the housing market by 5%, according to figures released by financial advisers Hargreaves Lansdown.

Most people will not be able to take advantage of a SIPP to purchase property, because while a SIPP can be used as a deposit to take out a mortgage, government rules stipulate the home loan can be no more than 50% of the value of the pension.

The average pension fund in the UK is £30,000, which would allow a potential investor to borrow only £15,000 to purchase property, giving a total buying power of only £45,000, far below the average house price.

According to a survey by Nationwide, house prices increased by 0.2% in July and the average house cost £158,348. During the three months to the end of July house prices increased by 0.6%. However, the annual rate of house price inflation fell to 2.6%, its lowest rate since May 1996.

The Nationwide said that although transaction levels were still significantly lower than last year, there were indications that the housing market was recovering, with estate agents reporting an increase in buyers, and vendors showing a willingness to negotiate on prices.

According to the Nationwide, the annual rate of house price growth fell below wage growth for the first time since May 1996. A cut in interest rates is expected when the Bank of England meets next week, providing a stimulus to the housing market, although Nationwide said that it was unlikely to cause acceleration in the rate of house price growth.

Although the UK property market has weakened over the past year, a substantial fall in house prices is not anticipated. A recent study by the Centre for Economic and Business Research said that although prices would fall 5% by 2007, a crash was unlikely.

Experts at Capital Economics, however, said that prices could fall by as much as 7% by the end of the year.

The Nationwide does not expect the market to slump, but anticipates that house prices will fall gently for some time.

The Council of Mortgage Lenders (CML) says that the number of UK home repossessions has risen for the first time in seven years, in large part due to five rises in in mortgage interest rates since late in 2003.

Data shows that 4,640 homes were repossessed in the first half of this year, compared with 3,070 repossessions in the last half of 2004. In addition, the Department for Constitutional Affairs (DCA) released numbers showing that more homeowners are being sued for nonpayment of their mortgages.

The DCA says that mortgage repossession applications totaled 28,476 in the second quarter of this year, compared to 18, 675 in the same quarter last year.

The rise in applications is another sign that consumers are saddled with too much debt according to one analyst. An application for repossession, however, does not automatically result in an actual repossession.

Sometimes the lender and the borrower settle terms for repayment and the court does not grant a repossession order in every case.

The CML says that in historical terms repossessions are still very low but that they would probably continue to rise in the short term, although not to the levels that were seen in the early 1990s.

According to a report from the Centre for Economic and Business Research (CEBR), UK house prices will fall 5% by 2007.

House prices, which have risen for ten years, are expected to stop rising this year, at an average of £163,353, and then to fall to £155,329 in two years’ time. Annual house price inflation may decline from 18.3% in 2004 to 4.2% this year.

The reports suggest a number of factors have adversely affected the housing market, including higher interest rates, fewer new homes built, rising house prices, stealth taxes, student loans, higher stamp duties and tighter rules on inheritance tax and capital gains tax.

Costs could increase further in 2007, when Home Information Packs are introduced, requiring sellers to provide a survey, searches and inspection reports at an expected cost of £1,000.

Nationwide economist Fionnuala Earley said the CEBR report broadly supported the building society’s forecasts. However, Ed Stansfield, an economist at Capital Economics, suggested that that prices could fall by as much as 6-7% by the end of the year.

The CEBR does not, however, expect negative equity to return. It expects prices to begin to overtake levels seen this year, by 2010, and then to begin to grow faster than average earnings, at approximately 4.7% a year.

The reports authors were Mark Pragnall and Thushani Gajasinghe.

The Financial Services Authority (FSA) says that over two million people with endowment mortgages expect it to fall short of the sum required to pay off their mortgage. The average endowment shortfall per household is £7,200.

However, according to the Association of British Insurers (ABI), the average shortfall per policy has fallen since 2002. Approximately 70% of those anticipating a shortfall have remortgaged, sought financial advice or applied for compensation.

Chris Kenny of the ABI said that “the efforts of the industry and others appear to be paying off,” with significantly more people taking measures to address the possibility of a shortfall.

However, according to the FSA, approximately 700,000 people have still not taken any action to deal with their endowment shortfall.

Endowment mortgages were popular in the 1980s when many people were wrongly advised that their endowments were guaranteed to pay off their mortgages. There has been a significant increase in the number of consumer seeking compensation for mis-selling from endowment mortgage providers.

The Financial Ombudsman Service, which adjudicates on endowment mis-selling, received 1,300 complaints a week about endowment mortgages in June, 34% more than a year ago, and substantially higher than 300 a week three years ago.

The UK housing market is continuing to cool, with the Office of the Deputy Prime Minister announcing housing inflation of just 6.0 for the UK - with London housing inflation as low as 1.6%.

Like a ripple effect, annual property inflation is sinking fast in the south and south-east of England, while still remaining relatively buoyant further north.

However, this pattern is illustrative of general housing trends, and is occuring as a reverse of the pattern of explosive growth in housing prices.

Although mortgage approvals appear to be levelling out, building companies have begun to issue warnings on the effect of a slowed market on their dividends.

Speculation continues that the Bank of England will cut interest rates by a quarter percent in August.

According to figures from the Office of the Deputy Prime Minister (ODPM), annual house price inflation slowed sharply in April. The OPDM said prices

increased by 6.9% in the year to April, compared with annual growth of 12.6% in March. The steep fall in price inflation was attributed to the early timing of Easter 2005.

Surveys from mortgage lenders the Halifax and Nationwide also showed annual growth rates slowing. The Nationwide said price inflation fell to 5.5% in May - the slowest rate since August 1996. The Halifax recorded inflation at 5.7% - its lowest level for four years.

The slowdown in house price growth, together with weakness in consumer spending on the High Street, has led to speculation that UK interest rates could be reduced before the end of year.

The ODPM said that average prices fell 0.8% between March and April this year, compared with a 4.5% rise during the same period last year. However, this year’s figures were affected by the early timing of Easter, when housing activity usually improves.

The average UK house price was £181,832 in April, down from £183,346 in March. Annual inflation figures fell in all UK regions. Wales had the highest rate with 15.9% inflation, down from 22% in March. In Scotland, the rate decreased from 16.1% to 14.3%.

Prices in North West England increased 12.9% and in North East England by 11.9%. The slowest growth rate in England was in London, where inflation fell to 2.7% in April from 9.8% in March.

According to the Halifax bank, house prices fell 0.6% in May, although prices have fallen just 0.1% since the start of the year. Over the past three months, the market has been flat, with prices falling by 0.3%.

House prices are growing at their slowest rate for four years, on an annual basis, with a 5.7% rise in May.

Although the Halifax expects a 2% fall in prices this year, it believes that the housing market will continue to be supported by strong economic growth in the UK. The fact that interest rates remain at low levels will be beneficial, as will record employment levels, good affordability and increasing earnings.

Annual growth is expected to continue to decline throughout 2005, with sales 30% lower that at this time last year. However, sales activity has stabilised in recent months and the number of home loan approvals increased for the third successive month in April.

First-time buyers will benefit from the gradual fall in prices. On average, new buyers now pay 20% of their income on mortgage repayments, slightly higher than the 19% average of the past 20 years.

The recent slow-down in both the housing market and retail sales means that it is unlikely that the interest rate will be increased further.