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Rate rises bite into housing market

Thursday, 31 May 2007 12:00 AM

Monthly house price growth dipped in May, as the average house price rose to £181,584.

Prices rose by 0.5 per cent this month, after monthly growth of 0.9 per cent in April, the latest figures from Nationwide reveal.

But, similar trends last year mean annual house price growth remains fairly resilient at 10.3 per cent, marginally better than the 10.2 per cent recorded in April.

Over the course of the past 12 months, the average home has accumulated £17,000 in value.

But, Nationwide's chief economist predicts the threat of a further interest rate rise could dampen the housing market. However, a slump should be prevented if the general economy and labour market remains in robust shape.

Fionnuala Earley, chief economist at Nationwide, said it still remained uncertain whether the Bank would delay a further rate rise in the face of falling gas and electricity prices.

But, she added it remains clear the Bank's monetary policy committee (MPC) are in "hawkish mode", as shown by their "active discussion" of a 0.5 per cent rate rise.

Ms Earley said: "The MPC will not be willing to take the risk that growing inflationary pressures may be disguised by falling energy prices and the tone of the minutes suggest that they will move swiftly should more buoyant data come through."

She concluded there is a "strong chance" rates will rise before the end of the year, with an inevitable knock-on effect on house prices.

Meanwhile, the latest figures from the Bank of England on mortgage approvals provide a clear indication rate rises have curbed the housing market.

Mortgage approvals are at their lowest level for a year, after new borrowing and remortgaging fell in May.

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