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Rises slow down but a crash is ruled out

Property market analyst Hometrack is ruling out a 1990s-style housing crash, providing that bank base rate does not double to 8 per cent, but it warns that a smaller rise of 2 per cent could hurt borrowers.

Its August survey shows price rises cooling off, with average growth of 0.7 per cent to £133,000 from £132,863 in July, down for the second consecutive month from peak growth of 2.6 per cent in May.

The level of growth varied around the country, with central London seeing a 0.2 per cent rise to £442,300 from £441,415 while South Yorkshire rose by 1.9 per cent, with the average price now £69,800, up from £68,474.

Despite this slowdown, Hometrack still predicts annual growth of 20 per cent, falling to 7 per cent next year. The firm&#39s economist John Wriglesworth believes a full-scale crash would only come if interest rates increased significantly and unexpectedly from the current 4 per cent.

But he warns that a rise to 6 per cent could signal falling prices and lead to a 30 per cent increase in mortgage payments which would become a major issue for borrowers who have stretched themselves.

Wriglesworth says: “The market will continue to slow, especially at the top end, and we predict a gradual slowdown in house prices next year. Provided there are no significant rate rises, we anticipate no 1990s-style crash. Next year will be a boring market where prices will trot along with about 0.5 to 1 per cent monthly increase.”


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