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Tuesday 02nd of December 2008
March 7, 2008

Interest rates remain on hold


by Gill Montia
”Interest

The base rate has remained on hold for March, at 5.25%, despite growing evidence of a continued slide in house prices.

According to Halifax, the average price of a UK home fell 0.3% in February to £196,649, taking annual house price inflation to 4.2%, its lowest level since October 2005.

The lender is still expecting house prices to stabilise during 2008. It is predicting two cuts in the base rate this year and believes the market is supported by “sound economic fundamentals”.

However, some analysts are warning that tighter lending criteria will exacerbate the slide in house prices.

The 100% mortgage has virtually disappeared and Cheltenham & Gloucester, Alliance & Leicester and Britannia Building Society have all introduced a 10% deposit requirement for their best rates.

In addition, cuts in the base rate are not passed on by all lenders; Abbey will be raising rates on its fixed-rate deals by up to 0.2% from next week.

With regard to the economic fundamentals that could underpin the market, Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, says: “…survey evidence suggesting that companies may be starting to cut back on recruitment could exacerbate the weakness in property prices over the coming months.”

Figures published this week by the Recruitment and Employment Confederation and KPMG, the accountant, show that the number of permanent staff recruited by companies fell in February for the first time in almost five years.

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