The current softness in housing market activity is a sign that house prices have reached the limit of what current incomes and credit conditions can sustain. Given our forecasts for the economy and the labour market, we do not expect interest rate rises to spark a surge in mortgage arrears and forced sales. But the rate rises we expect will act as another headwind to new lending. They also re-inforce our conviction that house prices are set for a sustained period of low, single-digit growth.
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