THE Bank of England yesterday refused to bow to pressure and kept interest rates at 5.75% – despite signs the house prices are going into reverse.
The global credit squeeze and the Northern Rock crisis had also amplified the calls for a cut in rates, but the Bank’s monetary policy committee decided to take no action.
House prices in Wales rose by just 1.2% over the last three months, according to data compiled by the Halifax, the UK’s largest mortgage lender.
Annual price growth is down to 9.5%, with prices going down, on average, 0.6%, during September.
Other regions of the UK – notably Northern Ireland and the north of England – have seen even sharper falls, although the market remains buoyant in London and South East England.
Estate agents and economists claim the introduction of unpopular Home Information Packs has brought uncertainty to the housing market.
The Halifax also pointed out a high number of home-owners took out interest-only loans on favourable terms in 2005, many on two-year deals that are now coming to an end – prompting a further slowdown.
The bank nevertheless said it felt the UK economy and the labour market were in good shape, boding well for the housing market in the coming months.
Other data has already contributed to a sense of gloom over Welsh house prices.
The Land Registry has reported two successive months of price falls in Wales – Halifax suggests the average home in Wales now costs £165,472, although the Land Registry, which records actual prices paid on completion, suggests the figure is lower.
Martin Ellis, Halifax chief economist, said, “September’s price fall is consistent with the normal behaviour of the market during a slow down.
“When the market does slow down it is usual to see a mixed picture of marginal falls and marginal rises, it’s similar to 2005.”
But he said he was not expecting there to be a widespread drop in house prices.
He said, “The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage in the number of properties available for sale will continue to support house prices.”
But other mortgage lenders yesterday ignored the Bank’s decision and raised their own mortgage rates, with first-time buyers the worst hit. The UK’s second biggest mortgage lender Abbey announced that it was increasing interest charged on its 100% first-time buyer tracker mortgage by 0.45%, while the rate of its discount two-year variable tracker went up 0.1%.
Louise Cuming, head of mortgages at moneysupermarket.com, said, “It does show that whatever the Bank of England does really isn’t as relevant any more, as lenders will do what they want.
“All lenders are looking at their bottom lines and it’s costing them a little bit more to borrow money and that is going to be passed on to the consumer.”
The Wales TUC said it had wanted to see a cut in interest rates to help both homeowners and manufacturers.
Derek Walker, Wales TUC head of policy and campaigns said, “This is disappointing. A cut today would have protected hard-earned economic growth, given a boost to manufacturers in Wales and brought some relief to hard pressed home owners.”
Ian McCafferty, CBI chief economic adviser, added, “An interest rate cut was unlikely this month as there are, as yet, few signs of any serious damage to the real economy from the upheaval in the money markets. What’s not in doubt is that the next move will be down.
“The Bank will need to be vigilant for any signs of a significant erosion of business or consumer confidence but, unless the outlook for the wider economy dramatically worsens as a result, the Bank may well sit tight until early 2008.”