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Base Rate held as house prices continue to rise

December 10th, 2015

The Bank of England has today held Base Rate at 0.5% again, following December’s meeting of the Monetary Policy Committee.

It is now nearly seven years since the MPC dropped Base Rate to its current historic low, with pressure continuing to ease amid optimistic housing forecasts.

Halifax have released the 2016 forecast for the property market, with the report proposing that the present imbalance between demand for property and the lack of available stock will be the route-cause for ongoing property value increases in the new year.

The report suggests that prices could climb by a further 4-6 per cent in 2016, with the potential for interest rate rises and the inability for many borrowers to secure the required mortgage funds to purchase, providing evidence that predictions for a rise in property prices are realistic.

Commenting within the report, Halifax’s leading economist, Martin Ellis, noted that, “With house prices continuing to increase more quickly than average earnings, it is increasingly difficult to get on the housing ladder,” he said. “This ongoing development, combined with the growing prospect of an interest rate rise, should start to put the brakes on house price growth during the course of 2016.”

“The substantial imbalance between supply and demand is likely to persist, maintaining upward pressure on house prices in 2016. On average, UK house prices look expensive compared to incomes but valuations are supported by the low levels of property for sale, low levels of house building, and exceptionally low interest rates.“

Based on the Halifax house price index, the current average value of a property in the UK sits at £205,240. This figure already states an increase of 9.7 per cent on the overall increase to property values in 2014. While the increase predicted by Halifax would suggest that the lender does not view the lack of potential property as a reason for a reduction in activity in the housing market, the prediction of a 4-6 per cent rise in values certainly suggests that there is belief that the market will slow down.

From August 2014 to present, property rises in London have steadily reduced, but not flat-lined completely. Often seen as the barometer for the economic outlook on the property market, the reduction in the percentage of house price growth in the capital, since August last year, would further suggest that the market is cooling. The recorded level of housing price growth for that period sat at 21 per cent, but has since now fallen to 13 per cent. Details from the Halifax report suggest that a reduction to 10 per cent or lower in 2016 looks increasingly likely.

Ellis went on to say that the shortage in affordable housing would be a contributing factor in the market cooling further. As property values continue to rise further than the average UK wage, this suggests that it will become harder for would-be purchasers to save the required deposit, to secure a property. Although interest rates are likely to remain low for the foreseeable future, given the latest decision to not raise the Bank of England base rate, this is not necessarily sufficient to aid buyers in moving home.

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Ratchelle Deary, Public Relations Manager

Tel: 01489 555 080

Email: ratchelle.deary@contractormortgagesuk.com

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