Not a return to the 90's for property in Wakefield

31 July 2007

Bank of England government Mr King was at pains to point out the current situation in the UK housing market, including Wakefield, was not a return to the crisis of the 1990s during an examination by the Treasury select committee today.

Although he admitted no-one knows where house prices are going, the proportion of households in arrears is now stable at one per cent, compared with was six per cent in 1990s. The statistics for house owners in Wakefield is only marginally worse.

He explained, for a major crisis to occur - meaning households could not afford mortgages - interest rates would have to rise greatly, which they haven't, and a major upward shift in unemployment would need to occur.

However, Mr King explained a slowdown in property sales was natural as buyers were uncertain where  prices for houses for sale would head.

Research from Nationwide finds property prices fell 4.4 per cent year-on-year to May, while the Halifax predicts they will fall nine per cent by the end of 2008.

Kate Barker, outgoing deputy governor of the Bank of England, also explained there were some benefits to house price falls, removing the belief of buy-to-let property investors that property prices would only rise.

"In the short-term house price falls are not good news, but they could be helpful… removing the belief house prices will rise expedientially is a benefit," she said.

However, keeping inflation down is still the major priority for the monetary policy committee explained Mr King.

Yet, the Bank of England would not take knee-jerk reactions to cut back the rising cost of living he argued.

Mr King explained the fact he is forced to write letters to the chancellor of the exchequer with inflation over three per cent was not an admission of failure.

He added further letters would be written as inflation is expected to stay high, following recent hikes in energy and fuel prices.

"I enjoy writing letters," Mr King told MPs. "To bring inflation down to avoid writing letters is not sensible.

"It would not be sensible to overreact… to send the UK economy into recession to avoid the price of a stamp on an envelop."

He added the Bank of England had dealt with high inflation before and would bring down the consumer price index (CPI) again

"We have done it once and I believe we can do it again," he said.

Mr King moved on to claim the worst of the credit crunch was now behind the banking sector.

"Illiquidity problems are behind us," he told the MPs.

However, he explained the great expansion in the size of financial firms seem in recent years is now facing a reversal, as the unwinding of balance sheets – or deleveraging – occurring faster.

As such, banks were unwilling to expand – and lend to households – in the short term, but he expected profits were to be made for lenders.

" Despite the claims that Credit Crunch is behind us we still cannot get mortgages for all the people who want to buy houses from us" says Dawn Lavelle of Wakefield Estate Agents Manning Stainton