‘End of an era’ - property sector digests record interest rate rise  

Property professionals heralded the end of the low interest era yesterday after the latest Bank of England base rate hike.

The Bank of England’s Monetary Policy Committee increased interest rates to their highest level in decades with a 0.75% jump to 3%.

The Bank also said the UK faces a “very challenging” record two-year recession.

The rate rise was expected and property commentators and agents, perhaps unsurprisingly, attempted to remain positive.

Tim Bannister, property expert for Rightmove, said: “The era of historically low interest rates looks to be over, which is making it more challenging for those new first-time buyers who are stretching themselves financially to try and get out of the frenzied rental market and onto the housing ladder.

“However, compared to the volatility of a few weeks ago, mortgage rates have now started to stabilise and fall. As the rise was expected, we don’t think we’ll see any significant changes to new fixed rate deals based solely on today’s interest rate rise.”

He suggested mortgage payments will be much more manageable for those first-time buyers who have been lucky enough to save up a bigger deposit of 25%, as they may find that monthly mortgage payments on a typical first-time buyer home are lower than their current monthly rental payments.
 
"It’s important to look beyond the headline numbers, because, while ‘like-for-like’ mortgage costs have been increasing, mortgage brokers and lenders will be able to help people assess the different options available to manage their costs and see if they can afford to move.”

Data from Rightmove showed that buyer demand in October was 4% higher than in 2019 and down by 20% compared with October last year

The total number of properties that are marked sold subject to contract is 26% higher than in 2019, and 10% lower than this time last year, Rightmove said.

Bannister added: “We were already seeing activity soften in the market since the start of the summer as rising interest rates and the cost of living combined to make it more expensive to move. Along with the political uncertainty, the sharp rise in rates has had an impact on people’s plans and demand for homes, and a number of people are choosing to wait and see what unfolds over the next few weeks and months.”

However, he highlighted that there are thousands of different local housing markets, and various groups of people in different circumstances. 

He said: “Those in a fortunate position to have built up reasonable equity in their home, or who are cash buyers, appear to be carrying on with their plans to move, while those stretching themselves unfortunately may have to press the pause button for now.

“It’s worth remembering that buying a home is likely to be the biggest purchase that someone makes, and what we’re hearing from agents is that people are taking a medium to long term view when weighing up if now is a good time to move. If they know they can afford the mortgage payments and they’ve found a home they love, then they’re determined to try and make it work.”

Tom Bill, head of UK residential research at Knight Frank, added: “This latest bank rate rise is the clearest indication yet that a 13-year period of ultra-low borrowing costs is over. 

“Buyers and homeowners need to remember the impact of the mini-Budget won’t last forever and mortgage rates should start to calm down from the levels reached last month. 

“However, more than four million first-time buyer mortgages have been issued since rates were cut to 0.5% in March 2009, meaning many people don’t have first-hand experience of monthly mortgage bills rising meaningfully. This normalisation of rates plays a central role in our forecast that prices will fall back to their summer 2021 levels.”
 

Adrian Anderson, director of property finance specialists, Anderson Harris, suggested there was a glimmer of hope for homebuyers and mortgage borrowers as the Bank of England said the interest rate peak will not be higher than previously thought.

He said: “It is expected that future Bank of England base rate rises will be more modest than what is already priced into current fixed rate mortgages hence we are not expecting to see new fixed rate pricing increasing in line with the base rate.  

The news will be painful for many, however it should not be a surprise. At one stage after the mini budget analysts were factoring in the Bank of England base rate peaking at around 6%. Some analysts now predict the peak will be around 4%.    

“Those who have a mortgage and are still paying a historically low fixed rate should consider taking advantage of this and overpay into the mortgage to help reduce the capital and get used to the higher monthly payments for when their existing fixed rate ends.”