Will the threat of rising interest rates dampen the housing market?
Mark Carney’s recent announcement that interest rates will start to rise at the end of 2015 came a lot earlier than most had predicted. Press reaction was predictably doom laden – estate agents suffering sleepless nights, that the end of the world is nigh and questioning a collapse of the housing market with buyers’ confidence being adversely affected in the short term (some reports even speculating that one third of borrowers will struggle if rates do go up, consumer spending will fall and the threat of repossessions will rear its ugly head again…)
Of course, the reality is somewhat different. Anyone raising a mortgage over the past year has experienced the effect of the MMR rules in anticipating such rises – whilst very few borrowers on long term fixed deals will be affected (although such deals will become harder to find). Those on tracker mortgages could face a different story, and those borrowing on interest only terms are likely to find it very difficult to renew on anything but a repayment basis.
Inevitably, competition in the mortgage market remains fierce, and many lenders are likely to resist passing on any rate rise immediately (most standard variable rates already being over 4%, miles above base rate at 0.5%). Whilst any rate rise is likely to constrain house buyers’ budgets, we don’t feel house prices will be hit very hard; demand remains high and stock remains short (albeit, currently, largely over-valued).
One could conjecture that any rate rises might have quite the opposite effect – as interest rates will rise with growing inflation, encouraging a possible rush of people coming to the market to buy (property always acting as the ultimate hedge against inflation).
In conclusion, we believe that there really is no time like the present – and that, in a couple of years, people will be regretting having dithered over whether to purchase. Talking to a financial advisor now can still result in getting onto the fixed rate wheel – it is finding the right home that remains probably the most challenging part of the process. Employing the services of an experienced property finder may just be the best decision you ever make…