Falling House Prices put Pressure On Rate Cut

The Halifax house price index reported that house prices fell for the third month, in January 2008. This is the first time in 12 years that UK house prices have fallen for 3 consecutive months. However, the price drop was fairly limited house prices are 1% lower than 3 months ago.

With the MPC meeting tomorrow to set interest rates, it creates more pressure on the bank to cut rates. Although the Halifax predict a stagnation of house prices in 2008, rising credit costs and decreasing affordability could see house prices drop.

Falling house prices are likely to significantly affect the levels of consumer confidence and consumer spending in the UK. Since people have got used to rising house prices, any fall in house prices could cause problems, as in the past people have used rising house prices to remortgage and consolidate debt.