Interest rate rise: Agents warn of weaker demand and forced sales

The latest interest rate rise has heightened the risk of forced sales and buyers shying away from the market, agents have warned.

The cost of borrowing was increased by 50 basis points by the Bank of England yesterday from 4.5% to 5%.

This marks a 13th consecutive hike since rates were first increased in December 2021 from a low of 0.1% to 0.25% and puts the base rate at a 15-year high.

There are plenty of agents remaining calm and adding that this will just make sellers more realistic when it comes to pricing.

But there are consequences that others are warning of.

Alex Lyle, director of Richmond estate agency Antony Roberts, said yet another interest rate rise, coming on the back of so many and with the potential for more to come, creates further uncertainty, which is not good for the housing market. 

He said: “Although some parts of the country have proven remarkably resilient to increasing interest rates, inevitably this is less the case the higher they go.

“This latest rate rise will give those buyers who were anxious anyway an excuse to back out. 

“Quite a few buyers and sellers are sitting tight until the autumn in the hope that the situation will have settled down by then.”

Matt Thompson, head of sales at Chestertons, said: “We expect the rate rise to have an impact on overleveraged buy to let investors whose increased mortgage payments could lead to their investment making limited profit or even a loss. This could result in some landlords deciding to offload their assets.

“At this stage, we haven’t yet encountered homeowners who have been forced to sell up but, if rates continue to rise, some owners may be forced to review the situation and weigh up their options. At the same time, demand for properties in London continues to stay strong as the capital remains a hotspot for a variety of buyer demographics including international buyers.”

Managing Director of Barrows and Forrester, James Forrester, suggested the Bank of England has lost its grip on inflation, adding: “This will do nothing to revitalise what has become a rather weary looking property market in recent months and is sure to dampen buyer demand as lenders pass on this increase in the form of higher mortgage rates.”

It comes as Rightmove mortgage expert Matt Smith said more people are still sending enquiries to estate agents to view homes for sale than at this time in 2019.

He said: “We’ve also seen daily visits to our mortgage in principle service increase by 53% over the past month as more people look to understand what they can afford to borrow and repay on a mortgage. 

“This indicates to us that for many people right now, higher interest rates are leading them to assess their budgets and what they can afford rather than put their plans on hold.”

Nathan Emerson, chief executive of agency trade body Propertymark, added: “It’s undisputed that homeowners and first steppers will be facing the consequences of rising interest rates as borrowing costs increase. 

“However, with this comes a further shift towards more realistic and sustainable house prices down from the spike seen during the pandemic.

"Confidence from sellers is undeterred with our latest data showing a 70% increase in properties available for sale compared to April 2022 and in turn, this is providing buyers more room for negotiation as well as more choice.”

It comes as Chancellor Jeremy Hunt is reported to be holding a meeting with mortgage lenders today to discuss the issue of rising borrowing costs.

Craig Vile of lead generation software provider ValPal, said:  “The decisions taken will have a big impact on the market and it’s vital measures are introduced which help support homeowners and thus support those working in the industry to make the most of what continue to be huge opportunities. 

“We don’t need to talk ourselves into a house price crash - calm and assured leadership and sensible proposals, coupled with the strength of the market, will protect  the sector and enable us to come through the challenges.

“Many parts of the country are actually seeing prices rise, and the market remains incredibly robust.  Houses are still being sold.  It is estate agents and those working across the sector who now really hold the key to how things go from here. 

“Those who operate in the quickest and most efficient way to maximise the opportunities which the market is still offering will reap the most rewards.”
 

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