Ten percent interest rate needed to bring house prices into line with inflation

According to some experts the property value boom in the UK has become so out of hand that in order to bring it back in line the Bank of England would need to double the current interest rate, despite having hiked up the interest rate by three quarters of a percent over the past six months.

According to experts from the National Institute of Economic and Social Research this is the only solution to bringing property prices in the UK into line with inflation, after prices have rocked over recent years making property purchasing difficult for many, particularly first time buyers.

This means that the Bank of England would need to push the interest rate up to around ten percent, from its current standing of five and a quarter percent. Until August last year the interest rate stood at four and a half percent, but was raised to four and three quarter percent in August of last year. Just a few months later, in November 2006, the interest rate rose again by a quarter of e percent taking it to five percent. And in January 2007 yet another quarter percent rise in the interest rates took the rate to five and a quarter percent.

According to the forecast from the National Institute of Economic and Social Research the rise of the interest rate of ten percent could slow the rocketing price growth of housing, and could bring it closer to normal inflation levels. The average cost of a property in the UK is now so high that many lenders have had to make dramatic changes to the way that they offer mortgages, increasing the income multiples offered in order to enable buyers to raise the amount of money that they need to make a purchase, and extending the term of mortgage loans in order to make the repayments on these huge loans more manageable.

Tom Smith
5th February 2007

 

More Information:

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• Why Does The Interest Rate Of Your Mortgage Change?
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• The True Cost Of Your Mortgage
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