House price fears quashed

The National Association of Estate Agents has dismissed fears that a rise in interest rates will mark the end of the housing market boom.

15:26 06 May 2004

The National Association of Estate Agents has dismissed fears that a rise in interest rates will mark the end of the housing market boom.

Following the Bank of England's decision to raise interest rates by 0.25 per cent to 4.25 per cent today, Peter Bolton King, chief executive of the National Association of Estate Agents, said: "Whenever the Bank of England puts up rates inevitably a sense of uncertainty is created.

This increase will add 20.83 a month to a mortgage of 100,000 if passed on by lenders.

The UK economy is particularly vulnerable to interest rate increases, as the majority of consumers have variable or discounted mortgages, rather than the long term fixed-rate deals prevalent on the Continent.

"However, that in itself will not damage the housing market because we know affordability is healthy in historic terms."

Mr King added that the last quarter point hike had no effect on the market and predicted the same for the latest rise, "except perhaps on first time buyers who will be further overstretched".

Today's decision was also defended by the Council of Mortgage Lenders (CML) as a "necessary evil" to encourage a slowdown in the housing market.

The CML also predicted further staged rate rises through 2004 and warned borrowers on variable rate loans to prepare for higher mortgage costs.

Graeme Leach, chief economist at the Institute of Directors said interest rates had to rise in order to stem the double digit growth in household debt and house prices.

He said: "If the BoE had not raised interest rates they would have been guilty of negligence."

However, Jim Buckle, managing director of property website assertahome.com, warned of the knock-on effects of rates rises on home owners. He said: "Householders are paying ever-increasing multiples of their income to secure their desired home according to our latest housing market confidence survey.

"Aggressive interest rate increases will hit these newer homeowners hard and risk tipping the market into a downturn.

"Those in London and the South East are paying multiples well above the national average and are most exposed. And if the market is hit hard in London, past experience shows that the rest of the country follows."

John Goodfellow, chief executive of Skipton Building Society, predicted the rates hike would spark increased interest in fixed rate mortgages as borrowers may see the rise as "a sign of things to come and look to get the best deal they can now".