FEAR OF FINANCE

House-buyers think the housing market will actually fare worse next year under Tony Blair than under a new Tory government, according to a straw poll conducted by First Mortgage Securities, which sells mortgages over the phone. It only asked 105 applicants, which may be on the small side for a sample, but those who replied certainly appear to be a cautious bunch. The main industry forecasters are now expecting property prices to rise by 2-5 per cent this year, but over 60 per cent of the FMS sample were expecting only 1-2 per cent and 20 per cent believe there will actually be no change at all in property prices in 1996.

This must be depressing news for the housing market optimists, and especially for mortgage lenders, who have been frightening the Governor of the Bank of England by priming the housing market with ever more generous cash- back, discount and fixed-rate deals. Property is historically cheap but confidence is still feeble. The modest upturn in prices over the last nine months is almost certainly the result of the flood of special offers lenders have been pushing onto the market, and if the Governor gets his way and the special offers dry up and/or interest rates go up again property prices could stall or even start to fall again.

There is anecdotal evidence that demand for mortgages and remortgages has slowed again in the last two weeks, either because of the continuing poor weather, or more likely a less optimistic view of the economic outlook in general and personal circumstances in particular.

It also seems likely that rather more borrowers are applying for mortgages through intermediaries. This in turn implies that in their anxiety to win market share lenders are accepting more business from the poorer risks, those with negative equity, a history of arrears or country court judgements, and those looking for large loans in relation to their borrowing powers, all of whom tend to use brokers to find lenders.

For 1997, 52 per cent of the FMS sample forecast further rises of 1-2 per cent and 24 per cent expect a static market if the Tories win again. That suggests that any hopes the Government may have had that a slight but unmistakeable upturn in the housing market would help to spread the missing feel-good factor are once again misplaced.

But if Labour wins, the punters are even more cautious. Only 36 per cent expect a rise of 1-2 per cent, and 48 per cent think the market would be static. FMS managing director Nick Deutsch admits callers were not asked to explain their predictions. It could be that they expect a sterling crisis, which might force Labour to raise interest rates and adversely affect the housing market. Or they could expect Labour to embark on a public spending boom, which would have the same effect. But it is equally possible they think Mr Blair will be even tougher on inflation than the Tories and push rates up to head off any possible crisis.

The other explanation is simply that house-buyers are conditioned to fear that a Labour government will harm the housing market, and are reacting instinctively to those fears rather than interpreting events rationally. Either way the poll is just as much food for thought for Messrs Blair and Mandelson as it is for Major and Clarke.