The first interest rate hike for a decade will not disturb the housing market

By in Blog with 0 Comments

ON THE 1ST OF NOVEMBER 2017, THE BANK OF ENGLAND VOTED TO RAISE INTEREST RATES FOR THE FIRST TIME IN MORE THAN TEN YEARS. AFTER SUCH A LONG PERIOD WITHOUT ANY INCREASE, THIS NEWS INEVITABLY GRABBED THE HEADLINES BUT THE NEW RATE OF 0.5% STILL REMAINS THE SECOND LOWEST ON RECORD. THE NET EFFECT OF THIS ON THE HOUSING MARKET IS LIKELY TO BE VERY SMALL.

In fact, rates were at 0.5% during the whole period from March 2009 to August 2016 – set exceptionally low in an attempt to stimulate the economy in the wake of the financial crisis. Until the last quarter of 2008, interest rates had never been below 3% and for nearly ten years before that they had averaged 4.9%. Looking further back to the mid-1990s interest rates averaged 6.5% between December 1994 and December 1998. In the 1970s, interest rates were never in single digits, averaging 11% between 1973 and 1977, with highs of 15% in October 1976 – when the government was fighting high levels of inflation.

DATALOFT Interest rates up stats-01.png

While a number of banks and building societies have already announced that they will pass on the rate increase to borrowers, the impact of a quarter per cent rise on the pockets of most home owners, will be minimal. Indeed, UK Finance report that, over the last two years, more than 90% of new mortgage and re-mortgage loans have been on fixed rate deals. Of all outstanding mortgage loans, more than half are now on fixed rate deals.

For the five million borrowers on variable rate mortgages, some increase in their monthly mortgage is to be expected. Nationwide estimate that the 0.25% rise will raise the mortgage bill for home owners with a £175,000 mortgage on their base mortgage rate, by £22 per month.

The Mortgage Market Review, introduced in 2014 should mean that borrowers are better prepared for an increase than they might have been in the past. UK Finance estimate that, of all mortgages granted since 2015, 92% have been stress tested against an interest rate of at least 3% higher than their current rate.

Nevertheless, some economic commentators have suggested that the timing of this rise in interest rates is very odd given all the uncertainty that still surrounds the Brexit negotiations. There is a risk that the hike could be interpreted as part of a cycle of interest rate hikes which could knock consumer confidence at a vulnerable time in the UK’s economy.

The housing market is highly sensitive to interest rate rises and the Bank of England has been careful to reassure the market that only ‘very gradual’ further increases will be required over the next three years, edging towards 1% by the end of 2020.

Indeed, some argue that the rate rise should be viewed as a reflection of the strength of the economy where growth has been supported by resilient consumer confidence, a stronger world economy and small loosening of fiscal policy.

And let’s remember the savers, especially those saving for a deposit to buy a home. Any rise in interest rates, however small, is good news for savers. Some see this increase as primarily a timely warning to consumers who might otherwise be tempted to abandon savings and turn to borrowing in order to counter low wage growth and rising inflation. For the UK housing market, this is unlikely to have any discernible impact on prices or demand as we head into the low season. The Autumn Budget, which is expected to bring some concessions on stamp duty for first-time buyers, might merit bigger headlines.

Share This
George Tatham-Losh

Since forming the business in 2009, our founder, George Tatham-Losh, has become highly regarded as the local go to expert for advice on maximising property values and getting the most out of property investments, regularly speaking at events and holding well attended seminars. Born and raised in Cheltenham, George knows the town and County like no other and knows what works in the area. Alongside George is a specialist team of agents with a wealth of experience to help you sell, buy, let or rent property in Gloucestershire.

Blog Post Disclaimer

This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.

Downloadable Files and Images Any downloadable file, including but not limited to pdfs, docs, jpegs, pngs, is provided at the user’s own risk. The owner will not be liable for any losses, injuries, or damages resulting from a corrupted or damaged file.

Comments Comments are welcome. However, the blog owner reserves the right to edit or delete any comments submitted to this blog without notice due to :

  • Comments deemed to be spam or questionable spam.
  • Comments including profanity.
  • Comments containing language or concepts that could be deemed offensive.
  • Comments containing hate speech, credible threats, or direct attacks on an individual or group.

The blog owner is not responsible for the content in comments.

This blog disclaimer is subject to change at anytime.

If in considering action upon the contents of this blog, one should always seek professional advice.

We Won Banner We Won Banner