In its Economic Outlook the OECD warned that a tightening of monetary policy should be accompanied by “timely prudential measures” to curb the risk of excessive house price inflation next year.
In a separate economic forecast released today by EY Item Club it predicted house prices would rise by 7.4%, with growth averaging just over 5% from 2015-2018.
An added risk to the stability of the housing market is the expected increase in the Bank of England base rate next year which will affect homeowners not locked in to fixed rate deals.
The OECD has called for the Bank of England to provide some “clear and transparent” information on what will happen to interest rates which are expected to begin to rise in 2015.
According to EY economists by the end of 2017 the Bank base rate will have risen by 2.5% by but it expects banks to raise market rates only marginally and absorb some of the subsequent costs for borrowers.
It said: “This will protect people from potentially crippling like-for-like interest rate rises on their mortgages and loans.
Martin Beck, senior economic advisor to the EY ITEM Club forecast for financial services, said: “Homeowners and small businesses alike have grown accustomed to five years of low interest rates and relatively affordable monthly repayments.
“A sudden increase could send them spiralling into unaffordable debts which could increase banks’ write-off rates.”
Beck said the Bank’s base rate will rise fairly slowly and that competition among banks will mean that the sector absorbs some of the impact of higher rates on borrowers.
