Rate rise won't hit house prices

BRITAIN'S biggest mortgage lender Halifax said the widely-tipped increase in interest rates on Thursday would do little to take steam out of the runaway housing market.

Unveiling a 1.2% rise in property prices during October, Halifax said homeowners would take the expected quarter- point increase in mortgage rates in their stride.

The Bank of England is expected to lift the base rate to 3.75% tomorrow, the first increase in the cost of borrowing for almost four years.

Halifax chief economist Martin Ellis said: 'A 0.25% rise in interest rates will add around £4 per week to a typical £80,000 mortgage - a figure that can easily be absorbed by the vast majority of UK households.'

The bank said the year-on-year rate of house price inflation slowed from 18.6% to 16.7% in October but the market remained strong because of the healthy jobs market.

'Employment levels, the key driver of the housing market, remain very good,' Ellis said.

He also played down fears that consumers are saddling themselves with debts they cannot afford. Low interest rates make borrowing still very affordable, he said. Mortgage payments are 13.6% of gross earnings compared with a long-run average of 21%.

Mortgage rival Nationwide said last week house prices jumped by 2% in October.

Meanwhile, the latest CIPS/Reuters purchasing managers' report revealed the huge services sector powered ahead in October at the fastest for four years. The headline activity index registered 59.1 against 58.7 in October thanks to a surge in new business amid improved confidence.

Service sector firms expect the good times to keep rolling, with business expectations at their highest for 18 months. However, official figures showed manufacturing output fell by a disappointing 0.2% in September.

Economists said the news could push thirdq-uarter gross domestic product growth down from a preliminary estimate of 0.6%.

In Australia, the central bank has raised its interest rate by a quarter point to 5%. Like Britain, the country has been getting increasingly worried about soaring consumer debt and a property boom.