Home » News » Interest rate rise – will it turn the dials in the housing market?

Interest rate rise – will it turn the dials in the housing market?

The Negotiator canvasses the industry's leaders for its likely effect on the market and the wider industry.

NIgel Lewis

interest rate riseThe decision by the Bank of England’s Monetary Policy Committee (MPC) to introduce an interest rate rise of 0.25% a percent to 0.5% in order to keep inflation in check was applauded in most business circles as a prudent first move to ‘sensible’ interest rates after nearly eight years of rock bottom rates.

The move is intended to dampen down the economy mildly and rein-in inflation, which currently stands at 3% and is expected to peak higher than that before the MPC’s measures kick in. Bank of England Mark Carney said the inflation increases were due largely to the weakening of Sterling following the Brexit vote.

“The decision to leave the European Union is having a noticeable impact on the economic outlook,” he said. “We need to support the economy during this adjustment process.”

But what does the property industry think of an interest rate rise? Russell Quirk of eMoov, who was first out of the blocks into the news studios yesterday, said the rise would only add £16 a month the average mortgage holder and would be “water off a duck’s back for those with a fixed rate security blanket”.

But what did the rest of the industry think. Here are their reactions.

Knight Frank – James Roberts, Chief Economist

interest rate rise“An increase in the base rate is often viewed with trepidation by the property industry, but this long-expected move is unlikely to have a negative impact.

“I expect the Bank of England will follow the same strategy as the US Fed, and gently apply the brakes while giving lots of advance warning, in order to balance the competing pressures of normalising rates while not derailing growth.

“Consequently, I see a gradual rise ahead, partly to stockpile some future rate cuts should the MPC need to combat another downturn at a later date.

“Also, the Bank of England is showing some younger homeowners that rates do rise, given how long it has been since the country saw an increase – the last UK rate hike in 2007 came a few days after the first iPhones went on sale.”

Jackson-Stops – Nick Leeming, Chairman

interest rate rise“Today’s moderate interest rate rise is unlikely to disturb the housing market.

“Good things don’t usually last forever and the end of this golden period of great mortgage deals won’t be a surprise to the majority of prospective and current homeowners.

“The market remained fairly stable throughout the General Election and the EU referendum so it would be surprising to see activity levels or house prices fall as a result of such a modest change to interest rates.

“Traditionally, higher interest rates mean higher mortgage rates so we may see those already on the fence about moving house take a ‘remain and renovate’ approach instead.

“However, this hesitance will not be down to interest rates alone. Over the last year punitive stamp duty levels have been a real drag on the property market and will continue to be unless Philip Hammond announces stamp duty reform across all transfer values in the upcoming Budget.

“The combination of stamp duty, high moving costs, economic uncertainty and potential further interest rates rises, will represent a major barrier to home ownership.

“If the rumoured first-time buyer stamp duty holiday does come into play it will be a significant boon for this demographic.”

Chestertons – Guy Gittins, Head of Sales

“Today’s very small increase in the Bank of England base rate is actually good news for the housing market. The knock-on effect will most likely be that Sterling value will increase, potentially demonstrating that we are in a stronger position today than we have been in recent times and giving added confidence to overseas buyers currently looking at opportunities in within the UK.

“The housing market has already demonstrated resilience in the face of the snap general election and EU vote, so this is unlikely to have a significant effect. Whilst it does mean that monthly mortgage payments will rise marginally for those on variable rate mortgages, the degree of impact on individual households depends on the size of the mortgage.

“For the vast majority, although inconvenient, the small rise will be manageable, equating to approximately £30-£60 more per month on a £300,000 mortgage.  It will also benefit those with savings who will likely start to see higher returns.

“[Most] mortgage lenders have already withdrawn lower rate products and relaunched new mortgage deals ahead of this increase, with the remaining lenders set to reprice following this announcement.”

Glentree Estates – Trevor Abrahamsohn, Managing Director

“There is still uncertainty in the air with Brexit and this will probably be the case until a deal is done, in all probability by October 2018, when the true picture of our trading arrangements with the EU, will become clearer.

“I am sure that lenders in the Residential Property market will probably ‘crank’ the mortgage rates up by a ¼%, but I don’t think it will be appreciably more than this for the moment. The point being, that the trend for property owners who borrow is, technically, going the wrong way, although I think it will be a very flat curve and therefore, not too much to worry about.

“There is still uncertainty in the air with Brexit and this will probably be the case until a deal is done, in all probability by October 2018, when the true picture of our trading arrangements with the EU, will become clearer.

“I am sure that lenders in the Residential Property market will probably ‘crank’ the mortgage rates up by a ¼%, but I don’t think it will be appreciably more than this for the moment.

“The point being, that the trend for property owners who borrow is, technically, going the wrong way, although I think it will be a very flat curve and therefore, not too much to worry about.”

Haart – Paul Smith, CEO

Paul Smith, haart, image“This rise was predicted and as such we don’t believe it will impact the housing market at all. When you consider interest rates have historically been several percentage points higher, this very small increment should not affect anyone who has borrowed sensibly.

“With more stringent borrowing criteria in place we do not see very small increases in interest rates as being a significant impediment to the market. But this rise does show that rates could nudge up in future.

“A far bigger threat to the stability and health of the housing market is the punitive levels of stamp duty which the Chancellor should address as a top priority in his budget later this month.”

Sandfords – Andrew Ellinas, Director (London)

“A 0.25% rise is not going to have a significant impact on the economy as a whole, but it will further depress a falling property market, particularly in prime central London.

“Currently, the market is flat.  As an example, there are two blocks of apartments near our Regent’s Park office that are historically very sought-after and if a property came available we would be swamped with buyers and a sale would be made very quickly.

“In one of those blocks, in the same month in 2016 there were three apartments on the market and they all sold. This year, there are ten apartments currently available but there are no buyers for them.  In the other block, a very similar situation, there was one property on the market in 2016 and in 2017 there are ten that are not selling.

“There are two main reasons for this. The first is that they are overpriced. Vendors still believe that values are what they were two years ago.

“I called the top of the market just over a couple of years ago and it has been drifting down ever since, with a bit more yet to go.

“With so many tax changes (increased stamp duty, an extra tax for buy-to-let investors and foreign investors’ tax) and Brexit looming, there is too much uncertainty and buyers, particularly overseas investors, have been put off making big financial commitments.

“The government is being urged to abolish stamp duty ahead of the budget. Undoubtedly, this would be the best thing to happen to the property market. London is the driving force for every market and scrapping this tax would provide buyers with an incentive to start moving again.”

Kay & Co – Martin Bikhit, Managing Director (London)

“We expected that after 10 years of bank rates falling that at some point they will rise again so the announcement from the Bank of England is not a surprise.

I am sure that for first time buyers and those trying to get a foot on the ladder that this change will have a marginal impact on them, however I don’t expect to see any impact this will have on the London property market.

“As rates continue to rise, we may see some effect but this will be a gradual change over a long time period. It is expected that rates will rise to 2% by 2021.”

Andrews – David Westgate, Group Chief Executive

“The Bank of England’s announcement today should come as no surprise.  This has been mooted for a while now and, in my opinion, is actually long overdue.

“In the aftermath of the financial crisis, it made sense that rates should be kept low in order to drive activity in the market.  That was, however, 10 years ago and the time is now right to start readdressing rates.  Given that this is a relatively small increase in the base rate, its impact to most borrowers should be nominal and, assuming they have planned appropriately, relatively easy to adapt to.

“What the industry needs to ensure, however, is that it works to stem any knock to confidence amongst consumers that this announcement brings.  Simply hearing news of a rate increase will lead some people to reconsider their financial and property decisions and whilst this is understandable in some respects, these decisions should only ever be made based on personal circumstances and with at least a medium, if not long, term view.

“When taken in this context, today’s rate increase should not have any impact on the property market.”

 

 

 

 

 

November 3, 2017

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