"Worst is over" for housing market

MPs have been told the worst of the savage house price falls in the UK are over and that things are starting to "look better now than a few months ago".

Professor David Miles, author of a Government-commissioned report on the mortgage market in 2003 and 2004, said the situation has been made worse as property prices in 2005 and 2006 were over-valued by around 20% to 25%.

But the newly appointed Bank of England policymaker told the Treasury Select Committee that he believes prices have bottomed out and that the worst is over.

The new member of the interest rate-setting Monetary Policy Committee said: "Expectations are crucial in the housing market and they look a bit better now than a few months ago.

"My hunch - and I put it no stronger than that - is that we have seen most of the overall aggregate house price falls."

The news comes after Nationwide revealed house prices in June rose for the the third time in four months as potential buyers continued to return to the market tempted back by low interest rates and price falls.

Prof Miles had sent out an early warning about the housing sector in his Miles Review, which warned the mortgage market was not long term enough and that borrowers on short-term deals were left exposed to interest rate payment shocks.

Since the credit crunch the mortgage market has as he predicted undergone a shift change.

He said: "High loan-to-value mortgage products have dried up - ultimately that is not a disaster; people will wait a bit longer to buy and rent a bit longer.

"The flow of first-time buyers will be reduced as they accumulate higher deposits.

"This means that the volume of house purchases on a transition to a new equilibrium, where people buy later and with higher deposits, will be reduced. That is part of what we have been going through over the past 18 months. But it is a transition."

He added that the UK's official measure of inflation was "flawed" because it did not take into account housing costs which reflect consumer prices.