Property Roundup 2017: When interest rates rise…

This autumn’s property roundup is written at a time of lots of press speculation regards interest rates. The Bank of England has given its strongest hint yet that it may raise the base interest rate in November. So, what will the impact likely be on the property market?

If it goes ahead, this will be the first base rate increase for 10 years. Last year, the rate was further cut to 0.25% in the wake of the Brexit vote. Before that, the base rate had remained at 0.50% since March 2009. So, any change is going to be widely felt.

In 2017, some 43% of households with mortgages are on variable or tracker mortgages. This opens up the possibility that millions of home owners will see unwelcome hikes in their monthly expenditure. And of course this will happen in the lead up to Christmas. For many of these households, it’s likely that they will never have seen rates rise above 0.50%.

Property roundup 2017

So, what does this mean for the property market? Buyers appear to be showing some caution, perhaps more caution than in recent years. Buyers are more price sensitive when making decisions about moving and are taking longer to make decisions. So, the market is not moving as quickly as agents – or sellers – would like.

Mandatory mortgage affordability tests that lenders now insist on have also put a ceiling on the loan-to-value amounts buyers are able to secure.

We spoke to several local estate agents and the consensus is that there’s little to be gained in waiting to buy. The feeling is that buyers should look for a property and keep it for the mid- to long-term.

Brexit is an ongoing process and the combination of this, with increased mortgage regulation and rising interest rates means the market may slow temporarily. But house prices are not going to see any significant shift any time soon.

For households who are coming to the end of a fixed-term deal, or those who are free of tie-ins to their current lender, there is no better time to renegotiate a mortgage deal.

How much will a rise add to your mortgage?

For borrowers with a tracker mortgage linked directly to the BOE rate, for every £50,000 of borrowing on a 20-year term mortgage, an interest rate rise of 0.25% would see their payment increase by £6 per month*.
*Indicative figure, calculations based on £50,000 borrowed over a 20-year term, with mortgage interest rates changing from 2% to 2.25%. Source: Mortgage Advice Bureau (Chloe Lewis)

Read what we said about the property market in 2016 here.


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