‘Rising mortgage interest rates will NOT cut property transactions’
Industry data expert Anthony Codling says agents should not fear Bank of England's decision to increase its base rate to 1.75%.
Agents worried that the Bank of England’s decision to hike the UK base rate to 1.75% will subdue the already weakening sales market should not worry, a leading interest rates analyst has said.
Anthony Codling (main pic), who runs property search platform Twindig but used to be a lead analyst at city firm Jefferies, says his evaluation of historical data shows there is no connection between higher interest rates and transaction levels.
Speaking during a podcast with Guild CEO Iain McKenzie (pictured), Codling said: “If people need to move, they move. They might buy a slightly smaller home, or one in a less expensive area, but the chances are they will still move.
“I think there will be 1.1 million transactions this year and a similar figure next year despite the economic head winds.”
Codling argued that the base rate rise will eventually lead to first time buyers and those remortgaging their homes paying higher monthly premiums, but reminded listeners that that 80% of those who already hold home loans are on fixed rates.
“Essentially the thinking is that [higher interest rates] will take some heat out of the market as it will impact homebuyers’ affordability levels,” he said.
“A higher rate means a higher mortgage repayment, which a bank will take into consideration when accessing a buyer’s level of affordability. “They are hoping this will slow down the growth in house prices because people will have less money they can borrow.
Listen to the full episode of The Home Stretch podcast.
Read more about Anthony Codling.
But energy and living costs inflation will reduce disposable income that could otherwise be used for mortgages. Echoes of 1973. As a young neg we’d transitioned from 400 instructions to 6, then following various financial scandals and the Yom Kippur War we went back up to 600 mostly overpriced homes, vendors were unwilling to accept they couldn’t get the price they could have achieved 6 months earlier. Eventually, our bosses told us to disinstruct ourselves from the majority! Interest rates may not be as high now as then but I wonder if inflation means that the outcome for property prices might be the same. Demand is only effective if the finances are available and affordable. Here’s the background to what happened then – it looks very similar to what’s happening today – https://www.theguardian.com/business/2007/sep/14/money.northernrock3.
We have already seen property owners on SVR mortgages here in Battersea have their monthly mortgage repayments double; this does not take into account last week’s BoE latest rise.
Rightmove data confirms sales agreed are down in Q2 compared to Q1 here in SW11 across all properties.
The fact that most buyers choose Fixed Rate Deals when buying means that many are not yet feeling the pain of rising interest rates. However, the full effect will become evident when these low fixed rates deals end.
Halifax recently reported that UK property prices fell in July.
The housing market has become overheated as we all became addicted to cheap money.
The real risk of us heading into recession along with soaring living costs will, I fear, leave many homeowners in negative equity and, in some cases, unable to pay their mortgages.
I am reminded of the saying that those who cannot learn from the past are condemned to repeat it. Ignore the lessons of history at your peril.
While I hope Anthony Codling is correct, I fear his forecast may be wishful thinking.