Housing body calls for rate increase to slow market

You know that things are in a bad way when even representatives of an industry body call for a halt. Yesterday The Royal Institution of Chartered Surveyors (RICS) urged the Bank of England to raise interest rates to a five-year high of 5.00 percent on Thursday to dampen the housing market and prevent economic volatility. At the same time the body also hit out at the-buy-to-let

RICS chief economist Milan Khatri suggests that ‘The recovery of the economy this year has exceeded all expectations, the stock market is at its highest level for over 5 years and there has yet to be any noticeable negative impact from the August interest rate rise on the economy or the housing market,’ said RICS’s chief economist Milan Khatri.

‘The experience of late 2003 and 2004 shows that it takes several rounds of interest rate rises to take the heat out of the housing market when the economy is performing well,’ he added.
Furthermore, an increase in interest rate will provide "a more stable economic environment", Mr Khatri says.

Economists have widely predicted that the BoE’s monetary policy committee will raise rates to five per cent tomorrow, in what will be the second rise in three months.

The market for people with Buy to Let Mortgages has been able to overcome the BoE’s decision to raise interest rates in August, and this, said Milan Khatri, chief economist at Rics, is one of a number of reasons a further rise would be beneficial.

The message should be coming over loud and clear, whilst it is surprising that an industry body should call for a slow down, we suspect that RICS is looking to the longer term benefit of its members. If the housing market bubble bursts then it is likely that those involved in the industry will be hurt. Recent reports by Nationwide have echoed similar sentiment about concerns that the market has overstretched itself.