Rate fears fuel house price drop

THE housing market is slowing and the outlook is gloomy, according to new figures from the Royal Institution of Chartered Surveyors. The number of homes changing hands has dropped by almost a third so far in May, mainly reflecting fears of an interest rate rise in the wake of the General Election.

The RICS said that property sales were 30% lower during May than they had been in the same month last year. And although prices have followed sales volumes downwards, they do not appear to have fallen enough to tempt new buyers into the market.

The volume of enquiries from potential buyers remained flat for the fourth month running, suggesting that prices still have some way to fall before first-timers and others come back to buy.

Many people still hope to sell their properties but the shortage of buyers means chartered surveyor estate agents have an average 74 unsold properties on their books.

The RICS figures come a day after property website Rightmove warned that the housing market was heading for its worst year in a decade. It said transactions during the first quarter were the lowest since 1995 as sellers refused to reduce asking prices. It added that prices had risen by only 4.9% during the past year, and it expects annual growth to have stalled completely to hit 0% by July.

The chartered surveyors' figures confirmed Rightmove's assessment that many sellers were still not pricing their properties realistially. RICS national housing market spokesman Ian Perry said he hoped that a growing realisation that interest rates were not going to continue rising could help spark a recovery in sales levels during the second half of the year.

He added: 'While sales have stabilised in recent months they remain significantly down on last year's. Concerns that interest rates may rise again after the election seem to have kept would-be buyers out of the market. However, the low number of property sales, together with a marked cooling in High Street spending suggests that the Bank of England has achieved its desire to rein back household spending and borrowing, mitigating the need to raise interest rates again in the months ahead.'

But Perry's hopes of a moratorium on rate rises were shattered by comments from a member of the Bank of England's monetary policy committee who said that a rates increase could not be ruled out. Marian Bell said that keeping a lid on inflation remained a key target and the Bank believes that inflation will rise above 2% this year, despite signs of weaker economic growth.

Minutes of the most recent MPC meeting are due to be published tomorrow and economists will pore over them to see how the debate between the committee's hawks and doves is faring.