Property Update: Battered buyers may block the boom

WHILE estate agents were pressing for a 2 per cent interest-rate cut earlier this week, one leading analyst said rates may have to fall as low as 6.5 per cent if the Government wants to stimulate a housing-led consumer boom. Even this might not be enough to ensure rapid or sustainable price increases because buyers have taken such a hammering over the last couple of years, said Yolande Barnes of Savills Research. She has calculated that if rates stood at 15 per cent, reduced affordability (prices relative to incomes) would create a two-year slump. At 10 per cent buyers are in the same position as before the early Eighties recovery, but far more nervous. Even at 6.5 per cent confidence remains a crucial factor, she says. 'And against a background of rising unemployment, risk of higher mortgage rates and recent poor experiences with the market, purchaser confidence may be poor.'

Meanwhile, Peter Miller of the Royal Institution of Chartered Surveyors warned that even with this week's rate cut to 9 per cent, recovery would be slow because of the huge pool of unsold homes, so sellers had to be realistic about prices.