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Rate fears as George warns on price rises

Bank of England governor Eddie George&#39s declaration last week that the boom in the housing market is unsustainable has split industry opinion over whether it will lead to a hike in interest rates.

Speaking at a Treasury select committee meeting last week, George and other monetary policy committee members told MPs that the recent growth in UK house prices is “unsustainably strong”.

George said: “We do not believe the current rate of house price growth is sustainable but it is a factor driving consumer spending.”

Wriglesworth Consultancy analyst John Wriglesworth has interpreted the comments as an indication that George believes house price rises will slow naturally without the MPC having to increase interest rates significantly.

But the Council of Mortgage Lenders says it expects the MPC to “move on interest rates sooner rather than later” and warns that the longer that prices continue to rise rapidly, the sharper the correction to the housing market will be.

Prudential national mortgage manager John Malone is calling on lenders and the Treasury to take measures to dampen the buy-to-let market to free up more new properties for first time buyers.

Wriglesworth says: “It is blindingly obvious that this is recognition that house prices cannot continue to increase a rate of 20 per cent a year, nor can consumer spending continue as it is. George is saying natural market forces will slow house price rises – they will go down of their own accord.”

Malone says: “The buy-to-let market is partially responsible for causing the market to overheat. Lenders could play their part and be far more discerning in their underwriting requirements.

“A further measure could be the introduction of additional stamp duty payment on all buy-to-let and similar properties held by speculators manipulating the market to inflate the price.”


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