Although the property industry is searching for any way to stabilise the market most agree that the Bank of England’s Monetary Policy Committee had little option but to keep the UK base rate on hold at 5 percent last week.
Inflation is already well above target and likely to push higher and so the committee could not raise interest rates given that the UK economy is still weakening.
However, the rate decision was never likely to be positive for the domestic residential market. Neil Chegwidden, Head of Residential Research at Jones Lang LaSalle, confirms this view.
He said: “For the UK housing market, not even a 25 or 50 basis point cut would have been able to turnaround the fortunes of the ailing residential market. It continues to seem inevitable that house price falls will continue well into next year.”
Chegwidden still believes there is reason for optimism as we head into 2009. He said: “We expect the MPC to cut the base rate at least twice early in the year, financial markets should relax a little and the economy will begin to grow again. Most significantly these factors should signal that the worst is now behind us. This will mean that both businesses and consumers can begin to look forward again with house price falls gradually dying away by early 2010.
“With these trends in place mortgage lenders may be happier to reduce interest rates on products with higher loan-to-value ratios which will certainly help to boost the housing market recovery. We are forecasting that UK house prices will fall by around 12 percent this year and a further 6-8 percent in 2009. Significantly, we are expecting a very strong house price recovery post-2010 with house price inflation pushing above 10 percent pa.”
The Council of Mortgage Lenders (CML) was also unsurprised by the MPC decision to hold Bank rates at 5 percent.
CML director general, Michael Coogan said: “The MPC faced a difficult decision today in the face of rising inflationary pressures and a slowing economic outlook.
“Holding the Bank rate is better than raising rates, as one MPC member suggested last month, but a reduction would have been a welcome recognition of the current financial strains on households already struggling with hikes in other living costs.
“As a result of recent Bank rate reductions, mortgage rates are below their peak at the end of 2007 but many consumers will be looking to the MPC to respond soon to the slowing economy and reducing inflationary pressures.”
