If you’ve had your eye on the news recently, it will come as no surprise that interest rates have increased for the sixth time in a row from 1.25 per cent to 1.75 per cent. This comes at a time when economic uncertainty and political ambiguity are rife, leaving many home-movers concerned about their future purchasing plans. But how much will the Bank of England’s choice truly impact the average homebuyer? The answer: not as much as you fear!
Although the media may be presenting the sixth consecutive hike in interest rates as a threat to personal finances of apocalyptic proportions, it’s safe to say that it may not be as dramatic as it seems. In fact, the current state of interest rates is far better than they were a decade ago, and the current interest rates are very low by historical standards. From 1998 to 2009, interest rates were consistently above 2 per cent.
Furthermore, Nathan Emerson, CEO of PropertyMark, stated that the increase is “unlikely to be a factor that on its own has too much of an effect” on the actions of those who are seriously considering moving, with the impact on savings rates being good news for those who are consistently putting away money for their first or next purchase.
Whilst it is feasible that interest rates may have an impact on your mortgage payments, the impact shouldn’t be overly significant, or have a hugely detrimental impact on your finances. The average two-year fixed rate currently sits at 3 per cent, which is considerably lower than in 2008 when fixed rates exceeded 6 per cent, which doesn’t seem to spell as much catastrophe as many prospective borrowers may think.
Additionally, Knight Frank has stated that an increase in interest rates still places 2022 buyers in an enviable financial position, as “borrowers would still be spending a smaller proportion of their income on mortgage repayments relative to historic norms”. This is quite relieving considering that the cost of living crisis has seen many households have to dedicate more considerable chunks of their income to food and fuel.
In short, don’t wait to buy! An increase in interest rates does not always lead to a fall in house prices. Demand for property is still exceptionally high and continues to consistently outstrip demand. Although house prices may fall, this certainly will not happen overnight, and buyers could be waiting for years to see a noticeable decrease in property prices. UK property is historically a relatively stable market, with house prices doubling every 10-15 years on average over the past 100 years. Although house price decreases can be a scary concept for many homeowners, especially after the events of 2008, prices do naturally fluctuate over time as the market stabilises. These trends can be very unpredictable and timing the market is near on impossible, so, if you’re looking to buy, we recommend starting your search now.
For those looking to list their home for sale, the hike in interest rates may serve as a deterrent, with many sellers feeling concerned that the market is approaching a flatline or stagnation period, or that mortgage rates will make their dream property unaffordable. But this is far from the case – buyer demand is still unusally high, sitsting at a 50 per cent increase when compared to the last five years. This means that even if buyer demand decreases slightly, the market will still remain comparably strong, although we do recommend listing sooner rather than later to take advantage of the unprecedented demand we are currently experiencing. What’s more, listing as soon as possible for a Christmas move-in is highly advised, especially as sales are now taking an average of 150 days to complete.
If you’re already in the process of moving home, there’s no need to panic. When it comes to financing your property, make sure you seek advice from a mortgage broker or your bank to secure a mortgage you are comfortable with, they should be able to offer a variety of fixed rate options so that you can be confident your payments will not increase during your fixed period and can budget accordingly. Be sure to stay in regular contact with your agent and solicitor, so that you are aware of any issues in your chain if you have one, and if you’ve not sold your property yet your agent should be able to provide up to date information on your local market to put your mind at ease.
Ultimately, the primary inhibitor for a successful property sale or purchase depends on the buyer or seller’s willingness to progress despite the status of interest rates. Be sure to consult your local Centrick agent for their most up-to-date advice and information regarding the state of the property market, and keep in touch with your mortgage advisor. For more information on the impact interest rates could have on your property purchase, or for further advice on listing your property for sale in the current market, be sure to contact your local Centrick experts using the form below:
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