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Leading economist calls for interest rates over 8%

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13/03/2007

A leading economist has warned that interest rates need to go above 8% to restrain the rampant housing market or it will crash.

Martin Weale of the National Institute of Economic and Social Research, which acts as adviser to the Treasury and the Bank of England, said that the mushrooming property market was in danger of collapse. 

He reckoned that this would have “catastrophic” consequences for those whose home is their primary saving and investment and who are depending on it for their pension.

His warning came as figures revealed that average house prices are rising by £4,100 a month, or almost £50,000 a year if they maintained their current growth rate.

He is mainly concerned because UK homebuyers are making a massive saving and investment into property but are not, in his view, investing in pension funds or investment vehicles to fund their retirement properly.

The Bank of England has increased rates three times since August, so that they now stand at 5.25%, the highest level for six years. But this has not been enough for Weale. “Ten per cent might bring the boom under control, or possibly 8% would be enough to do it,” he said.

But his proposal was not met with general agreement. “I suspect Mr Weale is not a hard-pressed mortgage holder with a family who is just trying to make their saving and investment into property as they have been encouraged to do,” said father of three Philip Jones

“Mr Weale’s concern for the abstracts of the market seems to disregard the very real and harsh immediate consequences that his proposals would have on millions of mortgaged homebuyers.

“Perhaps he should stop and consider this before he speaks next time.”

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