The five consecutive increases in U.K. real estate base rates in 2004 has finally had an impact on home prices, which recently saw negative month-to-month price changes. According to analysts at the Royal Bank of Scotland, despite this slowdown, levels seem to be on par with the national level.

Market data from the RICS house price survey of surveyors indicating a rise in prices, minus those reporting a fall, reported levels as recovered to minus 37 in December from minus 47 in November. Analysts at JPMorgan Securities report the results indicate that home prices are showing resistance to a further decline but the sales to stocks ratio was down to 30.6%, suggesting that the market remains sluggish.

HBOs plc and Nationwide registered a month-to-month rise that resulted in year-on-year increases of 15.1% and 12.7%, respectively. "But these seemingly healthy rises mask the fact that Halifax's figures represented the smallest annual rise since 2001 while Nationwide's data showed the weakest growth since 2000," explained researchers at Deutsche Bank Securities. "The U.K. housing market is for sure in some way off its peak. For the year ahead, Nationwide is forecasting a 2% rise, while Halifax expects a 2% fall. Our economists are much less sanguine, expecting prices to fall by between 10 to 15% in 2005," Deutsche Bank researchers added.

Home price appreciation remains in the double-digits, but the signs remain for a sharp slowdown and with the number of mortgage originations falling at the fastest rate since 1998, a period of modest inflation seems hard to avoid. As origination volumes begin to taper off, analysts said that securitization volumes are likely to follow.

For the moment though, The Bank of England is leaving rates unchanged at 4.75% on the back of slower retail growth and a sluggish housing market. Analysts at Dresdner Kleinwort Wasserstein expect U.K. base rates have peaked and could be cut by 75 basis points this year.

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