February rate cut needed to support housing market

5 February 2008

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 supportthe housing market in 2008, but Halifax says lower interest rates arealso 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."

However, the Bank of England has warned that rising inflation might prove a barrier to it cutting rates.

Add new comment