TWO THINGS ARE WORTH BEARING IN MIND. Firstly, rates are still very low. The Bank of England base rate (on which mortgage lenders base their interest rates) was a tiny 0.1 per cent since March 2020 to bolster the economy during the pandemic. So a rate increase was inevitable. Secondly, the point of raising interest rates is to reduce general spending and not just the housing market. Inflation is on the increase, as the economy has bounced back quicker and stronger than predicted. WHAT DO INTEREST RATE RISES MEAN FOR CURRENT OWNERS WITH MORTGAGES? At these current low levels, the impact may be less than you think. Half of all homes are owned outright so their owners have no mortgage at all; of the rest, around three quarters of owners have fixed rate mortgage deals, meaning their repayments won’t change until their current deal ends. That leaves some two million owners either on mortgages described as having standard variable rates or tracker deals – for both of these groups, repayments are likely to rise as mortgage lenders increase their rates. HOW BIG WILL ANY FURTHER RATE RISE BE? Here’s the silver lining. The Bank of England has repeatedly said future rate rises would be small and gradual and many experts suggest a maximum 0.25 per cent incremental increase. On an average mortgage held by an existing homeowner, this would mean £16 to £26 extra per month – an unwelcome amount but not huge. However, don’t forget that’s just an average and every borrower’s circumstances will be unique. WHAT ABOUT FIRST TIME BUYERS? Although rising house prices haven’t made things easy for first-timers, mortgage rates have been very low. In particular, rates for FTBs with five or 10% deposits have dropped in recent months, but these will inevitably rise. Many experts suggest locking into a fixed rate mortgage: that may not suit every buyer but it could be a hedge against possible future rate rises. It’s always best to shop around and use a broker with knowledge of the widest range of products. AFFORDABILITY CONSIDERATIONS Household finances are under increased pressure from the increase in the cost of living and the imminent energy cap increase. It has therefore been suggested that lenders are becoming increasingly cautious and utilities might be considered in affordability tests during mortgage applications. The impact of this could mean that those with smaller deposits could be put off from becoming first-time buyers. WHAT WILL A RISE DO TO HOUSE PRICES? People contemplating selling and buying will recalculate and some may decide to wait. Market analysts – including the independent Office for Budget Responsibility which scrutinises the economy – predicted house price growth 2.0 to 3.0 per cent through 2022, and the number of sales will be 1.2m, roughly in line with long term averages.
Everything needs to be taken into consideration but if you are thinking of moving now is a great time to do it.
Call 01209 711118 / 07968641892 or email jason@homesofcornwall.com