Fears grow of property slump after failure to cut interest rates

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Mortgage experts say the lack of intervention threatens to tip the property market and wider economy into a recession.

The Bank's Monetary Policy Committee yesterday announced that it was keeping the base rate at 5.75 per cent.

Retailers fear this will affect Christmas sales, while there are warnings of rising repossessions and bankruptcies as homeowners struggle to make their higher mortgage repayments.

A Halifax property survey published yesterday found prices fell 0.5 per cent in October - the second monthly fall in a row.

Many analysts believe this heralds price falls throughout next year and beyond.

Chief UK economist at Global Insight, Howard Archer, said: "A sharp housing market correction is a genuine possibility."

The global credit crunch caused by problems with highrisk lending in the U.S. means banks are turning the screw on loan rates.

At the same time, wage rises have fallen behind the 3.8 per cent increase of the Retail Price Index, the measure of inflation that includes housing costs.

The net effect is that home repossessions are expected to jump 75 per cent this year to 30,000 and rise to 45,000 in 2008.

Kevin Hawkins, director general of the British Retail Consortium, said: "It's disappointing that the Bank of England has failed to deliver the shot in the arm customers and retailers desperately need."

But the Halifax's chief economist, Martin Ellis, ruled out a property crash, saying: "The UK economy is in a strong position."

HIPs to blame for fall in larger properties on market

More than three-quarters of estate agents have seen the number of larger homes coming on to the market fall by 10 per cent or more this year following the introduction of Home Information Packs, according to a study.

By contrast, just over a third of those questioned by the National Association of Estate Agents had experienced the same drop in one and two-bed properties.

The smaller homes do not yet require the sellers' packs, which are accused of burdening sellers with extra expense and red tape.