Interest rate rises put brake on European house prices

House price growth across Europe slowed sharply in the second half of 2007, according to an RICS report.

The RICS European Housing Review blamed interest rate rises rather than the credit crunch for the slowdown.

Prices even fell in some countries, among them Germany.

Ireland suffered the worst fall, of 7%.

The 2007 market was relatively buoyant in the Baltic states, with prices in Poland rising the fastest in the survey. However, Latvia and Estonia saw gains from the first half of the year wiped out later on.

The downturn is forecast to continue this year, but the RICS said that the UK housing market looks better placed than many to face 2008 because interest rate cuts should stabilise prices.

The report said that interest rates generally were rising slower than in previous housing market downturns and the European economy is in better shape than during the 1990s housing market crisis.

“The combination of markedly higher interest rates and a sudden, sharp recession, which last sent Europe's housing markets tumbling in the early 1990s, is still remote,” it said.

The RICS quoted banks and other financial authorities as saying that the US subprime mortgage crisis was unlikely to be repeated in Europe because of market differences between the two continents.