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Rate plea as home price growth hits 12-year low
Hugo Duncan, Evening Standard28 Mar 2008
The Bank of England was today under intense pressure to cut interest rates after house-price growth slumped to its lowest for 12 years.
Mortgage lender Nationwide said prices are only 1.1% higher than a year ago, the smallest increase since March 1996 in the dying days of the last Tory Government.
The news came after prices fell 0.6% between February and March to a UK average of £179,110, the fifth consecutive monthly fall. Average London prices are nearer £300,000.
Fionnuala Earley, Nationwide's chief economist, said: "A clear change in sentiment since the late summer has led to a sharp slowing in house price growth." She warned that the outlook for the market "is clearly more downbeat" than a few weeks ago.
Howard Archer of Global Insight, warned there was the real possibility of a "sharp correction" in the property market. Allan Monks of JPMorgan forecast prices to fall 6% this year.
The market has been rocked by the deepening credit crunch, fears of a nasty recession in the US, the collapse of Bear Stearns, and a run on the shares of Halifax owner HBOS. Nationwide last night raised its mortgage rates as it slammed the door on all but the most reliable customers. The move will make it even harder to get a mortgage, dampening demand to such an extent it could send prices into sharp decline.
The Bank of England has already cut rates twice since December, from 5.75% to 5.25%, although Governor Mervyn King this week admitted the reductions had merely "offset" increased mortgage rates imposed by lenders protecting themselves from the credit crunch. Libor, the rate at which banks lend to each other in London, gained to fresh highs for 2008, fixing at 6.00625% at lunchtime today.
The Bank voted against another rate cut this month on grounds inflation was running well above the 2% target, driven by rising food and energy costs.
But Earley said the Bank should act in April to ease lending conditions and breathe life into the housing market.
"Since the last meeting, the collapse of Bear Stearns and the fallout from false rumours of problems in a major UK bank [HBOS] may have helped to shift the focus of the monetary policy committee to the need to loosen conditions in the financial markets," she said. "We think these latest developments, along with the continued weakening in the housing market, will mean the MPC will bring forward its rate cut to April."
Reader views (2)
It's about time the market adjusts.
- Bob, London, UK, 14/04/2008 15:13
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Do not remember calls for interest rate increases when house prices were going through the roof.
The bottom line of this credit crunch crisis, in the UK and in USA. Is that too many people have been given mortgages to buy property when they could not afford it and had no equity. Until such time as these people have been squeezed out of the system. The loan books of the mortgage institutions will be seen as dodgy and not worth their on paper values. There will have to be some pain.
Rather than encouraging transactions from a purely investment point of view. We should be increasing instead of lowering taxes for owners of more than one residential property including captital gains. To stop runaway house prices in future and put an element of stability into the housing market. This way people will not be forced to buy before developing a habit of saving first. Lower prices will also help those people who see buying a property as getting a home to live in rather than make a financial killing.
- Harvey Henderson, Harrow UK, 29/03/2008 15:43
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