The Bank of England announced yesterday that interest rates will rise from 0.25% to 0.75%, back to pre-pandemic levels, as it seeks to contain the UK’s inflation rate, which could rise to 8%.
This is the third time since December that the Bank’s Monetary Policy Committee (MPC) has increased the cost of borrowing.
Analysts anticipate that a further rise could happen in May, taking it to 1%.
The base rate is an official measure by which mortgage lenders determine their interest rates to consumers.
Only 6.8 million homes in England now have mortgages, that is only 28% of the overall market and about 2% down from the level five years ago.
However, inflation is expected to surpass 7.0 per cent this year, and the widespread uncertainty as to the effect of the war in Ukraine, add to a pessimistic mood music surrounding the broader economy – and with it, buyer confidence in the housing market.
How does the rise in interest rates affect the property market?
Industry experts have said “At the moment there’s such a huge demand for housing, the incremental interest rate rise is likely to have little impact in the short term on house price forecasts. Diverse packages previously offered by lenders have decreased in number with less choice now available for borrowers, but this is unlikely to have a dampening effect on a market still dominated by a disparity between supply and demand.”
It was also add that “the increase sits in line with expected rate rises for 2022, and in the short-term is not a surprise. Within the mainstream housing market, measurements such as employment figures and a further loosening of COVID-19 restrictions point towards a robust spring market. However, interest rate increases and the increasing costs of living are both metrics that we will continue to closely monitor looking at 2022 more broadly.”
The housing market is adjusting to a ‘new normal’, completely different from the pre-pandemic market; a more elevated, fast paced version where a number of highly motivated buyers are keen to move quickly and eager to compete with other likeminded buyers for the small number of properties available.
Small increases in interest rates are unlikely to result in a slamming halt for buyers, as if they are not organised and prepared to be decisive, they may risk missing out in this highly competitive market.