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House Prices In June Surprise Housing Experts

Well, it seems as though the experts are going to be confounded once again. All expectations have been for house prices to be reaching their peak and for the rise to be slowing down and reaching the tipping point.

Now what do we hear? House prices have gone up again in June, by an average of 1.1%, making it the biggest monthly rise since December last year. It takes annual house price rises up to 11.1%, this at its highest for over two years.

These figures contrast with other recent information which has shown that mortgage approvals have been down and it was widely thought that the four interest rate rises since last August had finally had the desired effect on the housing market.

It seems that may not be the case after all. Hints at a further interest rate rise in July have been coming more strongly all the time from the Governor and Deputy Governor in recent weeks. That has pushed the pound through the $2 level, jumping 0.2% on 28 June to $2.0035, taking it back towards its 26-year high in April of $2.0134.

Governor Mervyn King recently warned consumers to budget for further rate rises, and this week Deputy Governor Sir John Gieve said that interest rates must rise and gave warning that spectacular growth on borrowing for private equity deals and buyouts could put the banking system into danger and result in a financial downturn, and to control this interest rates must rise again.

The house price figures come from Nationwide, who suggest that the price of an average house is now £184,000, up over £18,000 in the last twelve months, which works out to a gain of £50 a day on an average house.

Experts now have little doubt that the Bank of England will push up interest rates by another quarter percent next week, and the level of 6% will be reached before the end of the year. The Bank cannot possibly discount such information on house prices, which have been one their bugbears in their attempts to control inflation and consumer spending.

The Nationwide still maintained that they expected the housing market to begin to slowdown as higher mortgage rates begin to have a real impact. They suggest that annual house price growth will actually come down to somewhere between 5% and 8% by the end of the year. Other recent financial data has all suggested that consumer is starting to feel the impact of rates reaching 5.5% in May. Retail sales, mortgage lending and consumer confidence were all down on previous figures.

Buy-to-let investors are also feeling the mortgage squeeze and this is likely to ease the upward push of house prices in coming months.

It seems that the June figures are regard by experts as an unforeseen blip in house prices which are bound to slowdown soon. It is interesting that the blip is actually a continuation of a previous trend in this instance! Nevertheless, despite Nationwide’s figures for June the expectation is for house prices to cool, and a rate rise is now seems inevitable.


Tom Smith
6th July 2007

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