what will interest rate rises mean for housing market?

After an extraordinary 18 months for the country during which there has been no shift in interest rates, there is plenty of speculation that the Monetary Policy Committee will finally make its move tomorrow.

In his recent Budget, Chancellor of the Exchequer Rishi Sunak forecast that inflation is likely to average 4 per cent next year, well above the Bank of England’s 2 per cent target. While soaring inflation has been blamed on the global demand for goods and energy, nevertheless the prospect of it resulted in Sunak writing to the Governor to remind him that it is in the Bank’s remit to keep inflation in check. It looks as though the rate setters will therefore have to make their move.

But what does this mean for the housing market? Property price growth over the past 18 months has been astounding since the market re-opened for business after closing during the first lockdown, and the stamp duty holiday was introduced to bolster sales. The average property price now exceeds £250,000 for the first time ever, according to Nationwide building society with annual price growth of 9.9 per cent in October. But it is worth remembering that the economy is only just recovering from a global pandemic. Employment may be strong but with government support about to end and an interest rate rise on the cards, will the combination of these factors have a devastating impact on the market?

Certainly, an upwards adjustment in interest rates has been on the cards for a while. The base rate was reduced to just 0.1 per cent in March last year in an effort to boost the UK economy and fuel the housing market. It has done its job, and then some. Those who wanted a bigger home as a result of living through lockdowns found that historically cheap mortgage rates, coupled with the stamp duty holiday, enabled them to stretch themselves and buy a bigger property than they could have dreamed of. With many people consigned to their homes, unable to go out and spend money, the surplus cash they were able to save enabled them to aim for that dream home. Confidence has been high and is not yet diminishing.

no need to panic

Even if rates do go up, there is no need to panic. Many borrowers are on fixed-rate mortgages, having taken advantage of some incredibly cheap rates, so a base rate rise won’t impact their monthly payments. While those on variable rates will see an immediate increase in payments, any increase in interest rates is likely to be minimal, the first of a few gradual raises over the next couple of years. The Bank will be mindful that the economy won’t be able to cope with too many interest rate rises too soon. This would cripple those mortgage borrowers on variable rates, along with those coming up to their term end and needing to refinance.

Modest rate rises should keep inflation in check, which is important, as well as dampen down the prospect of future house-price increases. This is equally welcome, as the market has been in a frenzy over the past few months. While homeowners may feel richer – the average UK property has increased in value by £49,257 over the past five years, according to Zoopla – it is not good news for first-time buyers. Not only do they have to pay relatively more for high loan-to-value (LTV) mortgages than those with bigger deposits, they have to pull together that down-payment in the first instance, which is no mean feat. With news that rents are also rising – Rightmove says rents in city centres in particular have not only bounced back from the declines recorded during the year since the pandemic started, but they have now hit double-digit growth and are outpacing the national average – saving is harder than ever, particularly when savings accounts are paying such poor rates of interest.

how we can help

While an interest rate rise this month is likely, banks and institutional mortgage lenders are still very much liquid which means competition on mortgage rates will remain high. There may not be the plethora of sub-1 per cent rates available – indeed, most of these have been pulled now – but mortgages will still be affordable and on the relatively cheap side.

With the housing market continuing to be busy, and more buyers than sellers, if you are not a cash buyer getting your finance arranged quickly enough to beat the competition can be a challenge. With first and second charge bridging loans available, MT Finance is here to support those looking for short-term funding.

It’s not always about the rate you pay but how quickly you secure the finance also plays a part. We can arrange bridging finance within hours, lending from £50,000 up to £10m at up to 70 per cent LTV. Terms are from one to 24 months. Get in touch for more information on or 0203 051 2331.

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