Housing market still buoyant

Minutes from November’s Monetary Policy Committee meeting show that two members voted against the quarter point base rate increase.

The Bank of England’s MPC voted seven to two in favour of a 0.25% rise to 5%, giving hope to borrowers that it may refrain from raising rates further.

Since the October meeting it reported that the housing market seemed buoyant, despite signs of slowing house price inflation in some regions.

The average lender’s house price index has risen by 2.5% in the three months to October 4, compared with the three months earlier.

It also noted that lenders appear to be increasing the supply of mortgage finance, with some easing their limits on how much they were prepared to lend.

For most members of the Committee, the balance of risks suggested that Consumer Price Index inflation would exceed the 2% target in the medium-term if base rate were maintained at 4.75%.

For those members, an immediate increase of 0.25% was necessary to return inflation to target.

However, Stuart Law, managing director of Assetz, says the decision was not as clear-cut as first expected.

He says: “This division within the MPC, along with the latest results showing inflation is steady at 2.4% and lower than the 2.6% anticipated, gives hope to the housing market that the BoE may refrain from raising rates again in the near future.

“The sudden admission by the BoE that inflation risk is a lot lower than they had previously suggested confirms our view that 5% is possibly the top of this cycle in rates.”

He says house price rises over the next two years are unlikely to be interest rate-led, but rather the result of continued high levels of immigration into the UK, driven by the expansion of the EU to include additional countries such as Poland, Bulgaria and Romania.

Law adds: “Growth as a result of a severe supply and demand imbalance is not something the BoE should attempt to manage, as it would take excessively high levels of interest rates to prevent the supply and demand imbalance from driving up prices.”