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House Prices To Slow Even With A Rate Cut

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:lol: House prices to slow even with a rate cut

By Angela Monaghan

Last Updated: 8:24am BST 27/09/2007

House prices rose again in September, as the expectation that interest rates have peaked appears to have been enough in the short-term to offset uncertainty caused by the widespread credit crunch, according to a report by Nationwide.

The building society said that UK house prices climbed by 0.7pc in September, to an average of £184,723.

Fionnuala Earley, chief economist at Nationwide, said: "House prices recorded a reasonably strong gain of 0.7pc between August and September, seemingly shrugging off the unsettled events of the past month."

However, there are clear signs that caution has grown among consumers and lenders, as the rate of growth in the last three months slowed from 2pc to 1.6pc compared with the previous quarter - lowest level since July 2006.

The annual rate of inflation fell to an 11-month low of 9pc in September from 9.6pc in August and a peak of

11.1pc in June, due to very strong monthly rises a year earlier.

"Overall house prices defied the gloomy predictions of some recent headlines, but their underlying growth is still on a decelerating trend," said Ms Earley.

A decrease in interest rates, which is now generally expected in response to Northern Rock and the wider credit crunch, could help mainstream borrowers and those coming off fixed-rate mortgages.

Ms Earley said: "Sentiment has changed significantly as the potential adverse economic impact of the credit crunch has been acknowledged by the Monetary Policy Committee...The likelihood now is that we will see a cut in base rates early in 2008."

However, the report said that this was not likely to be enough to stop a slowdown in the growth of house prices in the coming quarters.

The picture is gloomiest for those who are reliant on highly leveraged borrowing, which is likely to decline. Ms Earley warned that the impact of the credit crunch has not yet fully filtered down into the housing market, but as the price of credit becomes more expensive in the mortgage market, "the longer-term effect will undoubtedly be to take some froth out of the market."

The resounding message of the report was one of caution: "Prospective buyers would be wise to think carefully about their financial position and the risks around it before entering into a house purchase decision," it said.

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