Another Interest Rate Hike Expected

The Bank of England expected to raise interest rates yet again.

Economists are forecasting that the Bank of England will raise interest rates by a quarter percentage point on Thursday, with experts saying the move would affect house prices, as some experts refuse to rule out a rise of half a point — taking rates to 1.5%.

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Zoopla’s latest House Price Index shows that property price growth hit nearly 8% in January, but will house prices fall if the interest rate is hiked again?

Experts predict that the housing market will almost certainly be hampered by the expected increase with a fall in house prices.

Inflation is currently running at its highest level in four decades, at 9%, and the Bank of England is under growing pressure to tame it.

Fifth consecutive interest rate increase on the cards

If an increase in the interest rate took place, it would be the fifth consecutive increase and – according to some analysts, including the head of investment analysis at AJ Bell, Laith Khalaf – increase the risk of recession:

By raising interest rates, the bank is putting the brakes on an economy that is already slowing of its own accord. That risks the economy stalling, or worse, going into reverse.

After a period of huge growth, increased borrowing costs would be extremely likely to slow demand for property, which would in turn cause property price growth to slow.

Flattening in the market

David Hollingworth of London & Country said the expectation is that a slowing in price growth or even a flattening off would take place and buying agent Henry Pryor agreed, adding:

It will dampen enthusiasm, but it won’t cause prices to fall. House price inflation this time next year will be 2% rather than 5%. Demand always exceeds supply, even when house prices historically fall. The average estate agent’s office today has about 20 houses for sale but nearly 400 buyers on their books.

It will take five years for house prices to be back at their current levels, as the market peaks before declining, predicted Pryor, as lenders find it difficult to make money more readily available.

Next steps for buyers

If you are in the market for a property, whether you are a First-Time Buyer, looking to invest in a Buy-to-Let or remortgaging, you might be wondering what it means for you:

  • More affordable housing. While it’s unlikely that house prices will fall, the rapid rise in prices that we’ve seen over the last couple of years is likely to slow down. So you are more likely to find something in your price range to fall in love with
  • Higher interest rates. However, base rate increases will show up in your mortgage as your interest rate is likely to be higher. So the sooner you find a great deal and lock it in, the better, as we never know when a new base rate increase is coming
  • Less competition. As Pryor pointed out, demand usually exceeds supply in the housing market, but now that the stamp duty holiday is over and interest rates are going up, people that were keen to take advantage are no longer in the market, so you may find there is a little less competition now, which should ease the stress of the process

As always, if you are at all uncertain about what steps you should take next, Mashroom has your back. If you’re just curious about what you could borrow at the moment, you can use our free Mortgage Calculator. If you’d like to get some advice, book a call in with our mortgage advisors to find out what your options are.

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