UK Housing Market House Prices Could Rise Faster with Delay in Base Rate Increase
According to BNP Paribas, if the base rate is kept at the low rate of 0.5% through next year the UK housing market could experience a credit boom like that seen in the early 2000s. Annual house prices could rise by more than 6% per year as well. This could be received as a warning more than anything, but at least an issue to be taken with caution behind it.
In the eyes of the megabank, this is good news for house owners, but could a message which forces the Central Bank to act sooner rather than later to institute more restrictions to mortgage lending.
The bank sees house prices continuing to increase with time as household finances grow stronger and optimism levels continue to escalate. These factors will lead to higher demand for housing and that will lead to higher prices for homes.
Adrian Owen of BNP Paribas Real Estate commented on the impact of a delay in the base rate increase, saying: “While on the face of it a deferral would be good news for homeowners, we believe this scenario is a cautionary tale for the UK economy as a whole.”
Owen added: “There is already concern at the Bank of England over the pace of house price growth, and while the current lack of housing supply is a significant driver, the sustained low cost of finance is also a major contributor.”
Even though speculation continues across the country regarding the timing of the increase, governor of the Central Bank Mark Carney has indicated a rise could be placed on hold until late 2016.