The Association of Mortgage Intermediaries says the housing market will slow but a crash is unlikely, as part of its Quarterly Economic Bulletin launched today.
The paper claims interest rate rises are needed because of the broad spread of economic indicators. The full impact of rate rises will not be felt for some months as borrowers begin to realise the effects rates are having on their wallets.
Chris Cummings, director general of AMI, says: “Another increase in base rates to 6% is inevitable given the strength of the key indicators. If rates rise as soon as August, then another increase, possibly in November, to 6.25% would become more likely.”
Cummins says that low unemployment, supply problems and strong GDP will underpin demand in the housing market and prevent a major crash.
The report also claims the UK is far from seeing the major sub-prime problems which have dominated the US economy in recent months.
Cummings adds: “The investors who finance the sub-prime lenders are becoming increasingly risk averse and so expect a higher return for investing in sub-prime. However, there will always be a market for credit-impaired borrowers.
“The key is for the risk to be priced appropriately and the credit criteria to be strict enough to protect the customers.”
The mortgage market has not seen delinquency figures climb as quickly as for credit cards and other unsecured borrowing and unless a recession happens then the market will not suffer the same problems as seen in the early 1990’s, according to AMI.
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