Lenders warn of further interest rate hikes
23 May 2004
Interest rates may have to double to curb the UK's housing market boom, a new report claims.
The Council of Mortgage Lenders (CML) has warned that the property market could spiral out of control if the Bank of England does not introduce large increases to the cost of borrowing.
CML director general Michael Coogan told the Sunday Telegraph that interest rates must rise to slow rapid house price inflation down to single figures and prevent a market crash.
He added that the Bank of England's policy of introducing small rate rises might not be enough to cool down the UK housing market and warned that the cost of borrowing may have to double if the current boom continues.
"There are risks for interest rates. Our simulations suggest that they should more than double if house price growth is to fall into single digits in the short term," Mr Coogan said.
"As a result, it may already be too late for the Monetary Policy Committee to influence the housing market with small tweaks to interest rates.
"There is clearly a danger that we will reach a point where more aggressive rate hikes are necessary."
The CML is reportedly due to publish its latest analysis of the housing market on Monday.
The UK housing market saw prices increase by 30 per cent in 2002 and 15 per cent in 2003, while consumer debt in Britain has reached an all time high.
Last month, the Bank of England's Monetary Policy Committee increased the base rate of interest from four per cent to 4.25 per cent.