S&P: Interest rate rise by the Bank of England won’t send property prices plummeting
Credit ratings agency Standard & Poor's (S&P) said today that an interest rate rise this year could slow house price growth, however a number of structural factors will support demand and prevent an outright decline.
"The issue is whether the rise in interest rates that we expect to start in late 2015 could eventually bring the housing market recovery to an end," S&P said.
Luckily the credit ratings agency thinks damage to house prices is unlikely to be "material so long as mortgage affordability remains favourable", because the Bank of England has stressed rate rises will be "slow and gradual", and this will be from a very low level.
Additionally structural factors like declining household debt, wage growth which has been boosted by low inflation and a dwindling housing stock means there will be plenty of buyers chasing after new homes.
Bank of England governor Mark Carney recently warned that the rate decision will "come into sharper relief around the turn of this year". Economists expect a minority of the rate-setting committee to vote for a hike at its meeting next week, ending a period of unanimity in favour of holding them which has lasted since January.
"UK house price inflation will continue its strong upward path … this year on the back of good economic growth, declining unemployment, and very low interest rates," it said.
The ratings agency predicts that house prices across the UK will rise by seven per cent this year, five per cent next year, and 2.5 per cent in 2017.
"It may look unusual, but this time the boom-bust housing cycle that is all too familiar in UK history may really avoided," it said.