House-buyers "fastening financial seatbelts"

12 July 2004
Interest rates will need to rise to a 12-year high before the UK housing market risks a crash, a new report reveals.

Yorkshire Bank's latest Housebuyers Survey reveals recent interest rate rises have not led to the anticipated panic amongst UK property owners and hunters, just a "fastening of financial seatbelts".

Indeed, one in eight people claim their monthly mortgage payments would have to increase by at least £250 before they would be deterred from buying a new home. For this to happen interest rates would have to rise to a level not seen since 1992.

With experts currently suggesting the Bank of England's interest rate could be between five and six per cent by next July, thousands of buyers may hardly give it a second thought.

Yorkshire Bank's head of personal financial services, Gary Lumby, said: "The four interest rate rises over the last nine months have only made a slight dent in the confidence of the UK property market."

He added: "Last month Mervyn King, Governor of the Bank of England, warned chances of house prices falling are greater than they were. But have his words actually had more impact than the rate rises themselves?"

Mr Lumby concluded: "The economy has been doing well for years and many homeowners have a lot of leeway when looking at the proportion of their income that their mortgage eats up."

Although the chancellor has no direct influence on setting the interest rate, the history books indicate further rises next year are unlikely.

The last time interest rates rose during election year was in 1974 when the Conservatives lost to Harold Wilson's Labour Party.