Rake could hit housing market

The first hike in interest rates for 12 months has sparked fears of a slow-down in the housing market.

The Bank of England’s Monetary Policy Committee increased interest rates to 4.75% last Thursday, having previously held them at 4.5% for 11 months running.

It had been widely debated whether rates would change at all, with many expecting a hike to come later this year.

Barry Naisbitt, chief economist at Abbey, says: “With economic growth at 0.8% in Q2 2006 and inflation at 2.5% I see this increase as an adjustment rather than the start of a new phase of rising rates.”

But the industry opinion is divided over the effect the base rate hike will have on the housing market.

David Newnes, managing director of Your Move estate agents, says: “This will put some potential buyers off making their move because any rate rise knocks confidence. The housing sector has been steady for the past six months so this hike is unnecessary and there is now a risk of the market slowing.”

However, Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, says: “We don’t believe this rate rise will have any immediate impact on the economy or the housing market, although if interest rates were to rise further in the coming months a slowdown in the housing market in 2007 would have to be expected.”