UK housing market appears to stall amid increase in interest rates

With the decision made to increase interest rates, buyers and sellers appear unlikely to enjoy the continuing financial respite necessary for the housing market to recover.

Despite the fact that the economic crisis occurred over ten years ago, as a nation, we are still feeling the aftershocks. With the economy beginning to stall in 2007, the Bank of England chose to reduce interest rates from 0.5% to 0.25% in an effort to encourage potential property buyers to go ahead with their mortgage applications and purchase a house. As a result, despite the subsequent decade-long rise in average house prices, as long as the deposit was affordable, the majority of buyers were still able to borrow money from lenders on reasonable terms.

In recent months, rumours began to circulate that the BoE were considering raising interest rates in an attempt to keep the rates of inflation low. If the rate of inflation were to rise too fast, experts believe that the cost of everyday necessities and living costs would account for a greater percentage of an individual’s personal earnings – reducing the amount spent on non-essential luxuries, and further hampering the recovery of the country’s economy.

In an effort to counter this worrying prospect, the BoE have decided upon a small increase in interest rates from 0.25% to 0.5% which they believe would make little difference to the prices of food, utilities and other essentials, while simultaneously benefitting those who have savings or pensions. Unfortunately for homeowners, those who are currently on variable mortgage rates for their homes could end up paying more.

Since the increase, a number of high-profile experts in the financial sector have been at odds as to whether or not the move would make repayments on current homeowners’ mortgages unaffordable while simultaneously preventing potential buyers from securing a decent mortgage rate at their time of purchase – and so far, the feedback from the property market has not been too encouraging.

With an already weakened economy due to public insecurity over the impending exit from the EU, many authorities believe that the timing of the interest rates increase was badly chosen, and should have been delayed until after the necessary international trade deals had been agreed upon by the government and their foreign counterparts. However, as the economy is expected to grow at the rate of 1.7% per year between now and 2020, the BoE have suggested that the rise was unavoidable and that the public should expect further increases in the next few years.

So far, the higher rates appear to have caused an immediate slowdown in the number of purchases and mortgage applications as potential buyers choose to bide their time until the state of the market is more transparent. And with a market whose buoyancy is closely tied to consumer confidence, estate agents are justifiably worried about their ability to stay in business as sales continue to slump.

For sellers, the news is even worse. Those who are already in the midst of covering high monthly repayments to their lenders may find themselves being forced to sell their house fast to avoid having their homes repossessed. Likewise, owners who are already in negative equity as a result of the 2007 economic crisis could find themselves plunging further into debt as their repayments are unable to be met.

Futhermore, if buyers continue to rest on their laurels and avoid applying for a mortgage in the coming months, those who need to sell will find themselves having to compete with one another in an effort to secure a sale – and the only way to win is to lower the asking price, leading to a further loss of personal wealth.

With the majority of houses currently selling beneath their asking prices already, those who wish to sell are under pressure to sell fast – or be prepared to remain in situ for a long time yet.

Worried about the effects of interest rates on your home? Why not ask National Homebuyers for advice, as we buy any house. Call 08000 443 911 or request a call back to find out how much you could get for your property.