The Woolwich research shows a divided but slowing market, as 53% expect house prices to increase throughout the UK during 2003, compared to 47% who expect stability or decreases. The lender believes that this will impact on inflation in the property market, which it expects to gradually slow next year and fall to around 4% in 2004.

The Woolwich predicts that base rates will rise by around three quarters of a percent in 2003. It does not believe that the Monetary Policy Committee will be able to afford to cut base rates for fear of over-stimulating the housing market. It expects gross lending in the UK to slow as the purchase market stabilises, but consumers will continue to take advantage of cheaper deals by remortgaging. Growth is expected to be around 4% year-on-year with total gross lending reaching the £225 billion ($350 billion) mark in 2003. By the end of 2002 gross mortgage lending is expected to exceed the £216 billion ($335 billion) mark.

Andy Gray, Head of Mortgages at the Woolwich said: "We believe that the house purchase market will slow gradually, whilst more existing homeowners will seek to re-mortgage to reduce their outgoings as weaker earnings growth, lower bonus payments, higher household taxes and interest rate rises work through. It's crucial that home buyers look beyond short term gains based on rapid house price inflation as this could intensify speculation regarding run away house prices which could eventually lead to a dramatic correction."