Bank of England raises interest rates to 2.25%

The Bank of England has raised interest rates from 1.75 to 2.25 per cent, the seventh consecutive increase, as it tries to get a handle on soaring inflation. Five members of the Monetary Policy Committee favoured a 50 basis points rise, with three members voting for a more aggressive 75 basis points increase and one member voting for a 25 basis points rise.

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 a slowdown in the rate of house price growth from 11.8 to 11.5 per cent in August, suggesting that the market is cooling. Buyers are still active and looking to purchase but are now more selective and calculated in their offers, taking into consideration higher mortgages rates, inflation and energy costs. Sales are happening but at a slower pace.

However, this all needs to be put into perspective. Even with the slow down in price growth in August, it remains marginal with house prices still at record levels and still in danger of running away from buyers. Halifax reported that a typical UK property now costs a record £294,260, while in London, a typical property costs a record £554,718, meaning the capital’s average house prices has risen by £44,669 over the past year.

With property values at record highs, a continuous upward curve in pricing isn’t realistic, nor desirable for first-time buyers and others struggling to raise deposits and meet affordability criteria. 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.

This is unlikely to be the last of the rate rises, given that the headline rate of inflation is currently 9.9 per cent, well above the Bank of England’s 2 per cent target. However, borrowers need not panic as we remain in a relatively low interest rate cycle. Planning ahead and seeking advice from a broker will help minimise financial pain.


stamp duty holiday?

It has been rumoured that the government will use this week’s ‘mini-Budget’ to stimulate growth in the economy by introducing another stamp duty holiday. Any stamp duty assistance is likely to trigger further activity in the market, as was the case with the last stamp duty holiday. This may persuade more sellers to come to market, which in turn would stabilise the price increases we have seen over the past few months.

Targeted stamp duty reductions could be even more helpful, and we have been calling for a reduction in stamp duty for downsizers for some time. Many feel that the cost of moving is too high and therefore restricts them from selling and freeing up larger family homes; any targeted stamp duty reduction for this group would be particularly welcome.


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 what could potentially be the tail end of the boom, and sell before prices start to dip.

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, via email or call us on 0203 051 2331.

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