100 days to halt housing crash

BRITAIN has just 100 days to avoid a catastrophic fall in house prices, with effects that will last for years.

Housing prices have soared since 1997 Housing prices have soared since 1997

Unless interest rates come down in the next three months, home owners face seeing the value of their homes plunge on a scale not seen since the property recession of the early Nineties [>

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Leading financial commentators fear that any crash could create a crisis like the one that has paralysed the United States property market, with homes being repossessed as mortgage borrowers fail to repay loans. [>

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Ray Boulger, of mortgage broker John Charcol, said that if the Bank of England failed to deal with the situation, any small early-year blip could spiral into a full-blown property crash.† [>

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He said: ìIf the Bankís Monetary Policy Committee does not begin rate cuts by its February meeting, prices will fall more dramatically.† [>

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ìWe expect modest falls in the first six to nine months of 2008 but the market can be brought back to stability if rate cuts begin soon.î [>

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The Committee is expected to keep interest rates at 5.75 per cent at its monthly meeting on Thursday, so will have only two more chances to avert a house price crisis if Mr Boulger is right. [>

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While most economists had been expecting an early rate cut in the New Year, many feel this has become less likely. † [>

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Last week two members of the nine-member Monetary Policy Committee, which controls interest rates, signalled that the economy, and particularly house prices, were set for an extended period of uncertainty.† [>

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Bank of England governor Mervyn King and deputy governor Rachel Lomax both hinted that a cut was not imminent because the Bank has to balance inflationary factors against interest rates.† [>

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If inflation rises towards or beyond the Government target of 2 per cent, the Bank will traditionally hold or raise interest rates.† [>

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Stewart Robertson, an economist at Norwich Union, believes the pressure on the Bank to raise interest rates ñ and condemn home owners to huge losses ñ is rising. [>

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He said: ìIncreases in utility bills, oil prices and spending over Christmas will feed inflation. It is likely inflation will go above the Government target of 2 per cent because of these increased costs and demands for higher wages to pay for an increased cost of living. [>

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ìThe traditional method of controlling inflation is to raise interest rates and, therefore, mortgage costs. But thatís a really tough call, given that home owners are already suffering and the property market is heading downwards.† [>

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ìWhat will probably happen is the reduction in interest rates most expect early next year will be delayed at least until the spring.î[>

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