February rate cut needed to support housing market
The UK's largest mortgage lender has warned than an interest rate cut is needed to prevent house prices from falling in 2008.
The Bank of England will meet later today to vote on whether to slash interest rates or freeze them for a second month in a row. But Halifax says an interest rate cut is essential after its figures revealed house prices remained static in January.
The bank's house price index shows prices fell 1% between November and January, but remained unchanged during the last month.
However, prices are 4.5% higher than a year ago with the average price of a home in the UK increasing by £7,628 over the past year to £197,244. This is the slowest level of growth since 2005 when prices slumped.
Halifax says the housing market remains weak with the number of mortgage approvals 35% lower in the last three months of 2007 than during the same period in 2006.
Martin Ellis, chief economist at Halifax, says sound economic fundamentals and lower interest rates will support house prices in 2008 but he warns house prices will be flat in 2008.
Growth in the UK economy and growing employment are likely to support
the housing market in 2008, but Halifax says lower interest rates are
also needed to prevent a fall in house prices.
Ellis adds: "We predict that the Bank of England will cut interest rates at least twice in 2008. Lower interest rates should help to prevent the economy slowing too sharply, therefore supporting the housing market."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).