Bank of England raises interest rates to 1.75%

The Bank of England has raised interest rates from 1.25 to 1.75 per cent, the sixth consecutive increase, as it tries to get a handle on soaring inflation. However, unlike at previous meetings where the Monetary Policy Committee raised rates by a quarter-point, this time it voted in favour of a more aggressive 50 basis points hike.

With the trend in rising interest rates continuing, the property market is showing signs of calming down from the frenzy of the past couple of years. Indeed, Halifax reported the first price fall in over 12 months in July, with average prices falling by 0.1 per cent, with the slowdown that has been expected for a while seemingly coming to pass. Higher mortgage rates, increasing inflation and the higher cost of development is impacting buyer demand. There are still plenty of buyers out there, but they are increasingly taking a more conservative approach.

However, this all needs to be put into perspective. Even with the reported price fall in July, it is marginal and house prices are still at record levels, in danger of running away from buyers. Halifax reported that the annual rate of growth was still in double-digit territory at 11.8 per cent, with the average house price remaining more than £30,000 higher than at the same time last year.

With property values at record highs, a continuous upward curve isn’t realistic, nor is it desirable for first-time buyers in particular who are struggling as it is to raise deposits and meet affordability criteria. The return of more realism is long overdue although with fewer buyers and far fewer sellers, we are still seeing activity in the housing market, especially when it comes to prime assets.

How much more homeowners can absorb in terms of higher rates remains to be seen. There is a fine balance between managing inflation but also driving mortgage payers into unrealistic payment situations.

With the headline rate of inflation expected to hit 13 per cent by December (well above the Bank of England’s 2 per cent target), this latest rate rise is unlikely to be the last of them. But borrowers should not panic as while further rate rises are possible, we remain in a relatively low interest rate cycle. Planning ahead and seeking advice from a whole-of-market intermediary will help minimise financial pain.

With a continued, gradual slowdown in the housing market expected, the question is whether the government will try to rally the market again with a restructure of stamp duty or other measures. This could be an initiative for an incoming new prime minister.


how MT Finance can help

While a gradual turning tide may be better for the overall health of the housing market, it is also providing impetus for sellers who are keen to take advantage of potentially the tail end of the boom, and sell before prices fall.

If you are a property investor or landlord and need to move quickly to secure an investment property with quick finance required, MT Finance can assist. For those wishing to purchase an investment property who are not cash buyers, a first or second charge bridging loan can put you ahead of the competition.

For more information on MT Finance’s short-term funding options, please get in touch online or call us on 0203 051 2331.

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