Hometrack has predicted that any move to increase the Bank of England base rate will do little to slow the housing market.
The Bank's Monetary Policy Committee is expected to increase the base rate rise by 0.25% or, at most, 0.50% later today. Analysts say the decision will be based on fears that household borrowing is rising at unsustainable levels.
John Wriglesworth, chief economist at Hometrack, says: “Those predicting that the increase in the base rate will cause chaos in the housing market overlook that even at 4%, the base rate will still be the lowest since January 1955 - leaving out the two most recent changes.
“It is easy to forget that in the 70s and 80s, base rates rose as high as 17% and they didn't fall below 5% from these highs until September 2001.
“Typical mortgage repayments as a percentage of household income averaged 21% in the 1980s, then 22% in the 1990s. At the current low base rates, this ratio stood at approximately 13%; the effect of even a 0.5% rise will increase the ratio to only 14.5% – still exceedingly low by historic standards.”
He adds that with lenders being more flexible with income multiples and an increasing number of innovative mortgage products targeted to make house purchase more affordable we continue to be optimistic that the housing market will remain in a healthy state.
Wriglesworth adds: “House prices will continue to rise for at least the next 18 months. Our forecast for house price rises for 2004 is 4%, assuming no more major interest rises and provided the chancellor does not do something silly in the autumn statement like raising Stamp Duty.”