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London prices may be peaking but no double dip

Their June House Price Poll of Polls indicates the coalition government’s first budget will help keep monetary policy looser for longer, keeping mortgage rates lower and helping to avoid a major double dip.

David Adams, Chesterton Humberts’ residential director said:

“On a positive note, this is not a double dip, as once vendors realign prices by 5%, we are getting some quite competitive bidding.  In 2008 we started with a base interest rate of 5.75% and banks were not lending.  This contributed to a 20-30% property price correction during the global recession.   Now, we have increased lending from banks and a base interest rate of 0.5%.  Normally such a low rate would act like Viagra for a rise in house prices but with the current economic uncertainty, it is at least a strong defense against a correction as severe as we experienced in 2008.”

Douglas McWilliams of CEBR said:

“Slowing house price growth has left many commentators expecting another significant decline in house prices within the next couple of years. Bank lending remains weak, consumer confidence has been falling and the public finances face a severe and immediate correction. However, the overriding impact of the coalition government’s first budget is likely to be that monetary policy stays looser for longer. We had previously expected the Official Bank Rate to remain at the historic low of 0.5% until the end of 2011. Given the additional tax rises and spending cuts outlined by Chancellor Osborne last month, which are designed to bring the budget back into balance by 2015, we now project that the bank rate will remain on hold until 2012. This will help keep mortgage rates from escalating and encourage greater lending, providing a floor for prices and helping the housing market to avoid a double-dip.”
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