Dominic Agace, CEO of M Winkworth PLC

Dominic Agace, CEO of M Winkworth PLC gives his reaction to yesterday’s warning by the Organisation for Economic Co-operation and Development that the Bank of England should raise interest rates to 3.5 per cent by the end of next year in order to head off higher inflation.

“It is inevitable that interest rates will rise, and as long as planned increases are flagged early the housing market should be able to adjust over a period of time.

Saying this, the market is in a fragile position at the moment as sentiment beds down after the election uncertainty and the pending budget reduction measures to be released.  So we would strongly hope that this current flux could settle before interest rates were addressed, and that any increases were very gradual over a period of time, and certainly did not break 3.5% by the end of 2011.

This all said, a lot will depend on how banks treat their margins on debt as rates increase, and if banks margins continue to reduce on mortgages then some of the impact of interest rate increases will be absorbed. 3.5% is a very low interest rate in historical terms, it is the margins put on top for mortgages that will really affect affordability”.